Stéphane Richard: I'm in favour of consolidation, but it
year to get approval from the European Commission, and it's
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
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
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 network
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
"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
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 mobile.
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
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", he says.
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
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
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 venture.
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 market".
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
"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 intriguing.
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
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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