(AOF) – The European Commission has opened an in-depth investigation in order to assess, with regard to the European Union merger regulation, the project to create a joint venture by Orange and MasMovil. Brussels fears that the deal will reduce competition in the retail supply of mobile and fixed broadband services, as well as “multiple-play” bundled offers in Spain.
Orange and MasMovil are respectively the second and fourth largest operators in the retail and wholesale fixed broadband and mobile services markets in Spain.
The preliminary investigation shows that the two companies are close competitors in the Spanish markets for the retail supply of mobile telecommunications services; broadband fixed access services; and “multiple-play” bundles, including fixed-mobile convergent services.
The Commission found in particular that the operation would reduce the number of network operators in Spain, thereby eliminating an innovative and important competitor. “This could result in higher prices and lower quality of telecommunications services for consumers,” she said.
It also noted that, following the transaction, Orange and MasMovil would have the ability to restrict virtual operators’ access to wholesale mobile and fixed network access services, and would have an incentive to do so. “This could reduce the ability of these operators to compete, and in turn lead to higher prices and lower quality of services for end consumers in Spain,” explains Brussels.
The Commission now has 90 working days, i.e. until August 21, 2023, to take a decision. “The opening of an in-depth investigation does not prejudge the outcome of the procedure” reminded Brussels.
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Key points
– Telecom operator born in 1991 number 1 in Europe;
– Activity of €43.5 billion, structured in 7 main branches: France for 40%, Europe (Spain, Belgium, Luxembourg, Moldova, Poland, Romania and Slovakia) for 25%, Africa-Middle East for 16%, business services for 18%, then international operators and shared services, mobile financial services (Orange Bank) and Totem passive infrastructures;
– Economic model based on 4 pillars:
– enhancing the asset base (33% of the European fiber optic market) and supplementing it with a commercial satellite offer,
– capitalize on infrastructure,
– transform Orange Business with a focus on cybersecurity and profitability,
– accelerate growth in Africa-Middle East;
– Strong presence of the State in the capital (22.95% of the shares and 29.54% of the voting rights), Jacques Aschenbroich being chairman of the board of directors of 7 members and
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Christel Heydemann Managing Director;
– Controlled financial position with debt leverage of 1.93 and cash of €16.7 billion.
Challenges
– New “Lead the future” 2025 strategy:
– slight growth in operating income and discipline in investments,
– €4 billion in organic cash flow from telecoms,
– debt leverage unchanged at 2,
– increase in the minimum dividend to €0.72 for the 2023 financial year and €0.75 for 2024;
– Innovation strategy focused on network intelligence, operational efficiency, customer experience and sustainability of data and artificial intelligence uses and rich in a portfolio of + 9,000 patents:
– network automation via “Network integration factories”,
– co-innovation with + 60 accessible APIs, the Datavenue platform, dedicated support with Art Factory, Orange gardens, etc. and co-construction of offers with customers in the Orange Lab,
– academic and industrial research partnerships in France and Europe,
– support for 500 start-ups in the Orange Fab network
– Orange Ventures venture capital fund endowed with €350 million;
– Environmental strategy targeting zero carbon from 2040, with 2 milestones – 30% reduction in scope 1 and 2 emissions (vs 2015) in 2025 and 45% reduction in scope 3 emissions (vs 2020) in 2030 – via :
– the circular economy throughout the process and uses,
– the Orange nature carbon fund,
– the Padus Lab dedicated to the energy efficiency of networks and data centers,
– the launch of social and environmental impact loans;
– Enhancement of assets and strengthening of leadership in fiber infrastructure via Orange Concessions in France, TOTEM, a structure bringing together the “high points” of the operator in France and Spain and via Fiberco in Poland;
– Consolidation of Spanish activities in a joint company with Orange and Masmovil;
– Continued market share gains in Europe and Africa, 1
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engine of growth;
Challenges
– Monitoring of the customer base: 241.9 million accesses to mobile services, 45.4 million accesses to fixed services and 11.6 million convergent customers;
– Achievement of the 2025 financial objectives for the recovery of the Business division: €1.3 billion in revenue and return to growth in profitability;
– Increase in energy: coverage in Europe at +90% in 2023 and impact offset by the Scale up cost savings program;
– After net income more than tripled, 2023 objective of a slight increase in operating income, Capex down sharply, telecom self-financing of at least €3.5 billion and a leverage effect around of 2;
– 2022 dividend of €0.7, after deposit of €0.30 in December.
End of the price drop
Thanks to the price war, French consumers have benefited from internet prices that are among the lowest in Europe. But gradually, subscription prices are increasing. According to the telecoms authority (Arcep), in 2021 they increased by 3.1% for mobile and 5.1% for fixed. If the current inflationary context can explain this rise in prices, it is not the only reason. All players are indeed seeking to restore their margins. They have already succeeded in outsourcing part of their capital expenditure related to the deployment of their fiber and mobile infrastructures (4G and 5G). Now they have to increase their income. This is an important issue in order to benefit from the development of their performance. Generating a satisfactory level of available cash (free cash flow) also allows them to benefit from attractive financing conditions, in a sector that requires substantial investments. Investments in the sector almost reached 15 billion euros in 2021, a historic level. The increase has reached almost 50% since 2017.