Worth the Risk?

CommsMEA asks Marc Mesle, vice president of Orange Africa, whether it plans to invest more aggressively or pull back from Africa, in light of regulatory and economic barriers and the debt burdening its parent, France Telecom.

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By  Richard Agnew Published  May 25, 2004

|~|orange1.gif|~||~|CommsMEA: Orange has inherited several units in Africa and is one of the largest regional operators in terms of users. But you have taken a tentative approach to expansion in the past few years while other investors have spent heavily. Is Orange committed to its African division?
Marc Mesle: We are more than committed. In our way of working, we never think about providing a second-hand or low-profile service. When we go into a country in Africa or anywhere else, we aim to deliver the top level of service that we have developed in Europe. The African operations are difficult to run, but when they work, they provide good business. The group is very satisfied with the results of the African subsidiaries. In Africa, there are many issues around economic stability, and the regulatory environment is not that straightforward. So, if we were not in such a good position, I’m sure that the company would start thinking about doing something else.

CMEA: Have France Telecom’s debt problems essentially created more pressure to produce results with less cash?
M.M: It’s a case of the bottle being half empty or half full. The business case of the African countries has huge interest for France Telecom, because they are cash-producing. From that angle, they are a good investment. Also, the requirement for capital expenditure is not as big as it is in European countries, where you need to change technologies frequently. But in the tough situation resulting from the debt of the mother company, it’s been difficult to invest that much money, unless there is a very good opportunity.

CMEA: Will you be pursuing any more licenses in Africa?
M.M: This is a question that should be addressed at the level of Orange itself. But today, there is no question that we are developing the African business and there is growth to target, but the strategy of the group tomorrow will depend on the pressure of the economic situation. Let’s see.

CMEA: Have you looked at any licenses in Africa recently?
M.M: In Africa, no, because there haven’t been any good opportunities. The mobile sector in Africa is already open enough. There are better opportunities for legacy players rather than through new licenses. That is why we are focusing on business development rather than new licenses.

CMEA: Do you think some investors in Africa have over-stretched themselves, and as a result do you predict that consolidation and acquisition opportunities will arise?
M.M: Companies that have not been professional players are in a bad situation today, because they invested in the wrong way or were seduced by the business and were not able to run it. There are a lot of opportunities today in Africa at a very nice price. That is because it is difficult to liberate money from the area.

CMEA: How much of an impact does economic instability in Africa have on your business and investment planning?
M.M: Financial people are keen on stability and this is not the situation you find in Africa today, both in terms of the economic and regulatory environment. Forecasting is difficult — there are good examples of people telling us in the middle of the game that, ‘Oh, by the way, we forgot about this new tax that you have to pay.’ From a financial position, you can’t make a decision in Africa as long as you have this feeling that you can’t forecast what will happen.

CMEA: How much have you invested in Africa so far?
M.M: We invested an average of EU100 million and EU150 million as a first shot to launch the networks and we are running at around EU10 million of investment per year. This raises some issues because we are investing in strong currency but get income in local currency. In some areas, we have faced devaluation of up to 50%. Business models are not that easy to make, because of that. An ability to forecast and take a decision with a full understanding of what is going to happen is really crucial, if you want to be a big player. If you want to be a quick-win player, it doesn’t matter, but if you don’t, you have to weigh the deal against the potential growth and benefits.

CMEA: What have you done to protect yourself against devaluation?
M.M: The key issue about devaluation is that in some cases we are not allowed to protect ourselves. In one country, we are facing a huge devaluation of the currency and we cannot guarantee ourselves against it. We have to be clever enough to find other ways to build a business model that is not impacted that much by devaluation.
This is not easy. When the value is reduced by up to 50%, this looks like a mad story to our shareholders. But on a long-term basis, we are strong enough. If we have invested in a country, we want to be there, unless a case comes up where we cannot be there any more for safety reasons. We can support a bit of slowdown.

CMEA: What was the thinking behind the re-branding of the four operations?
M.M: The policy of re-branding has been based on a very practical approach. The brand is not only a matter of marketing, it’s something that reflects the value of the company. We’re not just painting the company Orange, we are training the people to take a customer-centric approach. It took between six months and one year to prepare the re-branding, but after that we have had interesting results. In each of the countries that have been re-branded, we have seen up to a 20% increase in income in one month. It’s not just a marketing tool, it makes a difference from the side of the customers and the motivation of employees.

CMEA: Is there any demand developing for data services in your markets?
M.M: In Africa, everywhere is based on a model of 95% pre-paid and 5% post-paid, so the only data service you can really provide is SMS. The issue SMS faces is illiteracy. We are trying to find a way to offer SMS so that you don’t need to know exactly how to read or write, like in Europe where the SMS language used is different. This would fulfill the need of some of our customers, such as those in agricultural areas. Now we are covering these areas, people producing goods can get information on the price of their products at market. The dream of data transfer and internet access, however, is next year’s game. There is a need for internet connections and there is a tremendous opportunity for mobile technology to provide them before the fixed businesses. But this will be in the close future, not the near future.
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