France Télécom Keen To Expand Emerging Markets Operations
French incumbent telecoms operator, France Télécom-Orange , has reaffirmed its Middle East and Africa (MEA) growth strategy , including plans to expand across Africa and a partnership with China-based internet search engine Baidu to develop a mobile web browser for its customers in the region. BMI believes Orange ' s strategy is driven by a positive outlook for organic and value growth in the region compared to its traditional markets in Western Europe.
At a press briefing in January 2012, France Télécom's senior vice president in charge of group strategy and development, Elie Girard, revealed that the company was interested in expanding into Algeria, Burkina Faso, Gabon and Mauritania. It is also interested in increasing its exposure in Mali, where it is present through a 42% stake it holds in Senegal ' s Sonatel , and Morocco, where it holds a 40% stake in local operator Meditel .
|Stagnating Growth In Traditional Markets|
|Mobile Forecast In Selected Orange Markets, 2010-2017|
BMI believes France Télécom is considering possible acquisition opportunities in view of the limited greenfield investment options in the region. The most notable target is Vivendi's 52% stake in Morocco incumbent Maroc Telecom. Although France Télécom has been linked with the stake, we believe the operator could be more interested in scooping up Maroc Telecom's Sub-Saharan Africa assets considering its existing interest in Morocco's second biggest telecoms operator. There is a likelihood that Vivendi or a new core investor with little or no experience in Sub-Saharan Africa could opt to sell Maroc Telecom's interests in Burkina Faso, Gabon, Mali and Mauritania. Qatar's Qtel and South Korea's KT Telecom are two leading bidders with limited experience in Africa and are, therefore, more likely to divest the Sub-Saharan Africa assets if their bid is successful. However, this scenario is less likely if MTN or Etisalat, both of which have extensive operations in Africa, snap up the stake in Maroc Telecom. With respect to Algeria, BMI notes that the government's tendency towards the nationalisation of telecoms operations makes it a trickier bet for France Télécom.
BMI believes France Télécom's MEA expansion strategy aims to take advantage of the region's subscriptions and revenue growth potential, compared to its traditional markets. The company claims it is on track to hitting a revenue target of EUR7bn from the region by 2015, double its revenue from the region when it first launched the strategy in 2010. Latest results published by the company show revenue decline in France, Spain, Poland and the rest of its European operations in Q312. By contrast, its MEA operations recorded revenue growth of 4.3% y-o-y during the same period, with Côte d'Ivoire and Egypt reporting particularly strong growth. With the average mobile penetration rate in MEA considerably lower than in Europe and the region expected to see strong economic and private consumption growth over the medium term, it is not hard to see reasons for France Télécom's optimistic outlook.
|Revenue (EURmn)||% change (y-o-y)|
|Source: France Telecom|
|Other European Units||843||-3.5|
|Middle East And Africa||1,059||4.3|
That said, we caution that there are considerable downside risks to France Télécom's ambitious revenue target. The most notable risk is the increasing downward pressure on ARPUs, largely due to intense price competition in the voice market and limited uptake of data services. France Télécom recorded annual rolling ARPU of around EUR375 in France and EUR169 in Spain in Q312. By contrast, annual rolling ARPU in Senegal and Egypt for the same period came in at EUR80 and EUR36 respectively.
It is therefore not surprising that the operator is implementing strategies to boost the uptake and usage of data services on its networks, alongside the expansion of its regional footprint. On January 14, the operator announced a partnership with search provider Baidu to launch a jointly developed mobile web browser for its customers in MEA. The agreement between France Télécom and Baidu is exclusive for one year while the service is available for free on Android-powered smartphones. Arabic and English versions of the browser will first launch at France Télécom's Egypt unit, Mobinil, while a French version will launch across the operator's units in the region throughout 2013.
France Télécom has partnered with global content producers, including Google, Wikipedia and Facebook, to introduce new non-voice services. The company's new partnership with Baidu is expected to be a key element of its non-voice revenue growth strategy.