Stéphane Richard: I’m in favour of
consolidation, but it takes a
year to get approval from the European Commission, and
Europe should have one telecoms market, with one telecoms
regulator — instead of the 27 regulators that now work
across the 27 member countries of the European Union.
That’s the ambitious aim of Stéphane
Richard, chairman and CEO of France Telecom-Orange —
an aim he shares, he says, with a number of CEOs of other
European incumbents. And they said as much to Joaquín
Almunia, the European Commissioner with the competition
portfolio, at a fiery meeting in Brussels in December 2012.
"During this meeting I was in charge of telling Mr Almunia
something that was not very nice to hear," says Richard. The
message they told him was: "We think that the policy led by the
European Commission in terms of competition policy and
anti-trust is not terribly favourable."
The problem, they explained to Almunia, is that: "The telecoms
industry in Europe is very fragmented, with more or less 100
players in the European Union, when you have three in China or
four in the US."
Is consolidation the answer? Richard cites the example of
Orange Austria, of which France Telecom owned 35% until the
beginning of January. Hutchison Whampoa bid successfully in
February 2012 to buy the company for €1.3 billion from the
two shareholders — the other being private equity
investor Mid Europa Partners — and merge it with H3G
Austria, the local version of Three.
It took 11 months to get the deal through Austrian regulators
and Almunia and his colleagues in Brussels.
"I’m in favour of consolidation of the industry in
Europe," says Richard. "I told Mr Almunia that it was a problem
when in some countries there is an attempt to consolidate the
market — like in Austria — it takes one year
to get approval from the Commission, and then if I may say so
it’s a very expensive approval [process]."
What was the reaction to this criticism at the December meeting
in Brussels which — says Richard — included
the CEOs of Deutsche Telekom, Telecom Italia,
Telefónica, KPN, Belgacom and others?
"Mr Almunia was a little bit angry," says Richard. The
Commissioner’s response, he says, was:
"Stéphane, you should not tell these kind of things
because it is true that the European telecoms industry is
fragmented, but it’s not my fault, or the Brussels
commission’s fault, but it is only due to the fact
that there is no single telecom playing field in Europe."
Almunia has "no alternative but to tackle the competition
market by market", he told the gathered CEOs. "The political
and legal constraints in Europe do not enable me to do it
differently," Almunia told them.
One regulator, not 27
His answer was for him and the operators, the big telcos, to
work together to "claim the creation of a real Europe of
telecoms, with a single regulatory and legal framework and
space, with one regulator and not 27 regulators", Almunia told
them. "And if this was realised, we could have an approach to
competition in Europe totally different from what it is today.
And we could then imagine having much less players than we have
However, just before Global Telecoms Business interviewed
Richard, reports appeared that the European Commission was
looking at something totally different — a Europe-wide
Richard dismisses this idea: "I am very sceptical about the
feasibility of a European network company, because it would
imply that the networks were separated from the incumbents in
every country in Europe, and to be honest I think there are
some countries where this operation is impossible, or would be
very, very complicated," he says.
"I think there is a little bit of confusion between two
different things. Both Mr Almunia and the CEOs of the
incumbents agree that it would be better for us to have a
single European space in telecoms and a single regulator
— why not?
"But it is totally different to say we need a single network
operator in Europe. It would mean that all the current owners
of the infrastructure and especially the incumbents would be
deprived of their assets. Nobody knows if it would be
government-owned or European-owned or if each of the incumbents
should be shareholders. I see this as an extraordinarily
complicated project and I don’t see any realistic
way to do it."
Where did the idea come from? It’s hard to say,
but Richard thinks it has developed from the fact that the
mobile-only operators, "led by Vodafone and [CEO] Vittorio
Colao", are looking at converged networks. "You have in Europe
a debate between the main incumbents and the mobile-only
players," he says. "The big trend is convergence. If
you’re mobile-only it’s a problem
because more and more you have to integrate fixed and mobile
telecoms needs in a single offer."
This is a challenge for companies that are mobile-only, or
mobile-only in most countries. "They are clearly lobbying
strongly in order to separate this access to network and
infrastructure in order to be more competitive in the
convergence [market]," he says.
There is increasing competition, he admits. "A good example is
the French market," he notes. With the increasing number of
players — and with European Commission limits on
cross-border roaming fees — margins are decreasing.
Yet operators need to invest in high-speed broadband, fixed and
Competition from Free
In France the market has been challenged by the entry in early
2012 into the mobile business by Iliad’s Free, set
up in 1999 by entrepreneur Xavier Niel as an internet provider
and now also a fixed-market operator.
"For customers [Free’s arrival] is good news
because prices have decreased almost 50%," says Richard. "So
it’s very good news."
But for the established operators — France Telecom as
well as Bouygues and Vivendi’s SFR —
"it’s a major challenge because when you have
prices decreasing so quickly you have to adapt and at the same
time you have to invest heavily in 4G and in spectrum". In its
home country "we have spent more than €3 billion to buy
spectrum", he says.
"The most visible impact of this is the stock price of France
Telecom which is more or less at its lowest point for 15
years." The share price started 2013 at €8.38, about half
what it was five years ago.
The result of Free’s competition is that "the
French market today is among the cheapest in terms of mobile
telecom prices in the world", says Richard. "We have recently
ordered a study by Arthur D Little comparing prices in mobile
services in six big countries — the US and five
European countries. And this study shows that France is by far
the cheapest with a ratio that is nearly one to two compared to
the UK and one to three compared to Germany and one to four
compared to the US."
Those comparisons are for similar bundles, he says, including
unlimited calls and text messaging and "a certain quantity of
This "very competitive market in France" has meant margins have
"decreased very sharply", he adds. "Clearly we have to adapt.
It’s a major challenge."
But Orange — France Telecom uses the brand in most of
its operations around the world — "is doing quite well
[in France] and better than the others, for several reasons",
The company has launched its own cut-price challenge —
a SIM-only, contract-free mobile launched in early 2012 under
the brand Sosh, "a new range available only on the web but with
very attractive prices".
At the same time it is benefiting from the fact that France
Telecom also offers home broadband, internet access and IPTV.
"Our quad play offer means that in the same contract you get
triple play at home and a mobile bundle — and this is
very attractive. We have today more than 2.5 million customers
in France for this offer and this has been very efficient in
The quad-play bundle is marketed under the name Open, he adds.
"As you can see we love English in this country."
But France Telecom has another way of insulating itself from
competition from Free: the newcomer has not yet built out a
nationwide network, and uses a roaming agreement with France
Telecom-Orange to achieve coverage in many parts of the
"This is something that is quite controversial in France,
especially among our competitors — but the fact is
that we have significant revenues coming from the traffic
generated by Free," says Richard. "We have more or less
€500 million a year of revenues coming from Free."
How will Orange continue to compete against Free? Richard
believes that the introduction of 4G is the answer. "The
challenge for us is to create more value and to increase prices
because there is an improvement in the quality," he says. The
idea is "to sell a little more expensive services providing a
different quality of service and customer experience".
And he dismisses Free as "part of the previous cycle". It is,
he says, "the end of the previous cycle, based on voice
revenues — voice and SMS — and the beginning
of the data era", while France Telecom-Orange is at the
beginning of the next cycle. "Free is very much limited to this
moment in history," he adds. The next era will consist of
super-fast services based on 4G and on new services such as
machine-to-machine and contactless transactions.
But will Free continue its competition as operators move to 4G?
Richard is doubtful: the company has "very limited resources to
invest", he says. If it wanted to do 4G "it would probably try
to do network sharing", he suggests.
Not that network sharing is unknown to France Telecom. In
Europe the company has a couple of network sharing deals
— with Deutsche Telekom in Poland and with Vodafone in
Spain. In the UK the company has taken the next step, creating
Everything Everywhere with Deutsche Telekom in a 50-50 joint
Such as merger is unlikely in France, he says: "To be honest
the competition authority in France would oppose any kind of
combination between players in the mobile industry. The real
prospect is very, very limited."
It’s a matter of choosing "different priorities"
for each market in Europe. "It is a consolidation issue. Quite
clearly there is a problem. In Europe our view is that we have
to be very pragmatic. We have to seek for any kind of
optimisation. And then the main strategy is to go as quickly as
possible to 4G and convergence between fixed and mobile."
Meanwhile there are a few consolidation opportunities in some
countries. TeliaSonera has put its 76% stake in Spanish mobile
operator Yoigo up for sale. "We are interested. We have
submitted an offer and we’ll see," says Richard.
So the creation of EE, as the UK business has rebranded itself,
is an isolated case? "I tend to think so. In the UK we had two
operators that are comparable in size and are part of two
groups that are friends," he says. "We have been able to create
governance for a 50-50 split that is working well."
That friendship with Deutsche Telekom had another result at
about the same time, a 50-50 joint venture on procurement. "It
delivers what was expected," says Richard about Buyin, as the
unit is named.
"We are still on the learning curve and we still have much more
to settle in the future. We are happy with the way it is
working. It took only a few months to recruit teams from
Germany and France. We have a business that is well integrated
in France and Germany. I view this as a real success."
Joint procurement — if it is to work effectively
— surely means that ultimately France Telecom and
Deutsche Telekom will have to bring together their shopping
lists. Richard agrees that "to converge your technology
choices" gives an opportunity "to be more effective with your
technology programme", but he warns that it is not as simple as
that "there are a lot of differences market by
Vectoring versus fibre
For example, fixed broadband strategy has to be different,
because Germany is more densely populated than France, and
Deutsche Telekom has more competition from cable operators than
does its French partner. That means "Germany is probably more
focused on vectoring on the copper network than France, where
fibre is probably the technology choice for very high speed
Collaboration with Deutsche Telekom is still developing. "There
is more to come," he says, "probably in the area of new
services innovation. It makes sense to cooperate." He lists
areas such as e-health, e-education and wifi access where the
two companies are working together. The collaboration includes
"20-25 projects", he says.
But France Telecom-Orange is not just France, and not just
Europe. Richard sees Africa and the Middle East as its big
growth opportunity. Indeed, he believes those areas have more
opportunity for growth than Latin America — the area
where rival European operators Telefónica and Telecom
Italia have major interests.
"Latin America does not offer the same opportunity for growth
as Africa and the Middle East," repeats Richard. "We have made
a good choice. In 20 years’ time it is likely to
be the part of the world with the highest growth rate
— in economic development and demography."
The group has already launched 3G in 14 countries in Africa and
the Middle East, he notes. "And we are working on investing in
3G services and smartphones in more and more countries."
Meanwhile the company is expanding its mobile banking services,
under the Orange Money brand. "We have nearly five million
users — a big success." There are just two players of
significance in mobile banking in Africa, he adds: "Vodafone
Kenya [Safaricom] and ourselves. We believe there is huge
potential for growth in mobile banking."
There is an operator in the region called Orange, but which has
no connection to France Telecom. Orange Israel was set up when
Hong Kong’s Hutchison Whampoa owned the global
brand: it had been the main investor in the original Orange,
the UK company, in the mid-1990s. Other non-France Telecom
versions of Orange, in Hong Kong, Australia and elsewhere, have
since been rebranded, but not the one in Israel.
"The company [Partner Communications] in Israel used the Orange
brand without paying anything," says Richard. "We have
negotiated with them to come back to a more regular standard
and we have a licence agreement. They are paying a fee."
Though this is a more normal relationship, it’s
still a bit odd, and Richard agrees. The Middle East is a
"troubled area", he accepts, and "we are totally conscious
about the problems" that can be caused — especially
when France Telecom operates a business under the Orange brand
in neighbouring Jordan.
"There is a problem with people using Orange and arriving in
Israel and in the Palestine territory," he says. "It is not so
easy to manage. But at least we are back to a normal legal
situation and framework."
Is the situation likely to change? Richard is non-committal
about this, saying only that "we don’t have an
investment in the operator" and that "there is no specific
discussion" about any such investment.
Incidentally Hutchison Whampoa, the parents of the Orange
brand, had a brief flirtation with Partner Communications
during 2012: it announced it had bought control of the company
for $125 million cash in June; then in August announced it had
had second thoughts and was not going ahead after all. The
conditions were not met, said the Hong Kong company, though it
added no more than that. Nevertheless, it’s
So, where next for France Telecom? It’s important,
says Richard, that the company makes "an effort to put the
group ahead and competitive in innovation", adding that
"innovation should be understood from the network and the
service points of view".
Innovation "does not just come from the big internet groups in
Silicon Valley", he adds, though "they have been spectacularly
good and efficient in the past 10 years in bringing new
But operators "have a lot to bring" in terms of innovation,
too, he adds, including in "the internet of things, contactless
services, public transport [and] cloud-based services".
Operators should be able to create value out of the specific
relationships they have with customers and users, he notes,
such as "guarantees of safety of personal data that they
won’t find among the internet players".
Richard is a keen enthusiast for Joyn, the GSM
Association-backed attempt by the mobile industry to create its
own social media service. "What we have to do is catch up with
social media," he says. "This is what we are going to do with
Joyn users will be able to exchange contacts and messages and
to share files and video using the system. Three South Korean
operators and three in Spain — including Orange Spain
— are already offering it to their customers. "It will
be a market-by-market launch," says Richard. "We are going to
launch it in France in June."
It is something different that will be available across a range
of operators, and will allow them to offer a service to compete
with Facebook, he suggests. "I expect this become to more and
more popular — as Facebook did."
He already knows of one keen user, the CEO of Vodafone:
"Vittorio Colao showed me he has a mobile phone with Joyn,"
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