Orange (France)

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Orange is one of Europe's biggest telecoms operators. At the end of the 1990s, the state-controlled communications group, then known as France Telecom, had expansion on its mind, establishing footholds in other European territories, not least the UK, where it snapped up local mobile service Orange and ISP Freeserve. However, the shopping spree brought with it substantial debts, which had risen to E70bn by 2002. That year the group almost outdid Vivendi for record corporate losses as it wrote off the value of failed investments. A new management team gradually restored the group's fortunes and began the slow process of reducing its debt mountain. In 2006, France Telecom unveiled an ambitious restructuring program in which all its worldwide mobile, internet and business communications businesses were merged under the acquired Orange brandname. As the group focused more intently on its international operations, the France Telecom name was retired into the background, and finally dropped altogether in July 2013. Since then, Orange has been gradually unpicking its network of foreign investments selling off weaker units to focus on a handful of major markets. In 2016, in the biggest such deal, it sold its share of leading UK mobile carrier EE to BT.

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Recent stories from Adbrands Weekly Update:

Adbrands Weekly Update 22nd Dec 2016: Ads of the Week: "Big Christmas". Getting in just under the wire ahead of Christmas Day, here's a funny seasonal spot from Publicis Conseil for French telecoms giant Orange. Two neighbours go head-to-head for the best Christmas decorations. You'll be glad *your* neighbours don't go in for this sort of thing, or you'd never sleep a wink.

Adbrands Weekly Update 28th Apr 2016: French telecoms group Orange is moving into financial services with a deal to acquire control of the banking division of local insurer Groupama. The two groups have been in negotiations since the beginning of the year. Groupama Banque will relaunch before the end of the year as Orange Bank, offering a full range of mobile banking services. Orange has agreed to acquire a 65% stake in the business for an undisclosed sum.

Adbrands Weekly Update 7th April 2016: A proposed deal for the purchase of French mobile operator Bouygues by larger rival Orange also collapsed at the final hurdle after months of difficult negotiations. Most reports put much of the blame on the intransigence of the French state, Orange's biggest shareholder. French minister for the economy Francois Macron had attempted to limit the large shareholding Bouygues' CEO Martin Bouygues would receive in the merged Orange/Bouygues entity, mainly to avoid any threat to the government's own influence over the company. Another major factor was the personal animosity between Bouygues and Xavier Niel, founder of mobile challenger Free. The latter was required to purchase a large chunk of Bouygues' infrastructure to avoid competition issues; but mainly because of their long-established dislike for one another, the two principals could not agree on a price or terms. Bouygues himself appeared to place most of the blame for the collapse on Niel's unwillingness to be pinned down to a firm proposal. Without naming names, he told Le Figaro newspaper, "There were four of us around the negotiating table, but only three of us wanted to make it work. Clearly one the players had the ambition to get the most while paying the least, with the option of pulling out." A deal had promised the long-anticipated consolidation of the French mobile market from four to three players. Its collapse promoted a plunge in all four companies share prices.

Adbrands Weekly Update 24th Mar 2016: Orange is close to agreeing a deal that will involve the break-up of the current #3 mobile operator Bouygues Telecom. Under the proposed plan, Orange would acquire Bouygues for around E10bn in cash and shares, making Martin Bouygues the second largest shareholder in Orange after the French state. To appease regulators, Orange would then sell on a big chunk of Bouygues' fixed line and mobile customers to second-placed SFR, and most of its wireless infrastructure and retail network to challenger brand Free, owned by Iliad. That will allow Illiad to convert from an MVNO operator as at present to a full-service wireless provider.

Adbrands Weekly Update 11th Feb 2016: Ads of the Week "Lovenames". We hope you guys have been planning ahead for Valentine's Day on Sunday. Publicis Conseil gets into the festive spirit for Orange mobile in Africa (because every one of the year's various traditional holidays now demands its own fully commercialised global support system). The resulting spot is charming, and will ring true for all you snuggle'ums, babycakes and sweet-swedes the world over... Enjoy!


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Background

Free for all users | see full profile for current activities: France's telegraph service was first brought under government control in 1837 in the same year that Frenchman Claude Chappe's invention of the optical telegraph was replaced by Samuel Morse's electrical system. The arrival of the telephone in 1878 revolutionised the service which, as in other countries, was placed under the control of the country's Post Office. Initially the government put the telephone licenses out to commercial tender, before realising their national importance. In 1889, commercial telephone operator Société Générale de Telephones was nationalised and the government spent the next decade networking the country.

During the first half of the 20th century, development of the French telephone system lagged behind neighbouring countries, not least because the network was destroyed twice in the First and Second World Wars. Following liberation in 1944, the post office established the Centre National d'Etudes des Telecommunications (CNET) as a research centre. At the same time the telephone system was placed under the control of the Direction Générale des Telecommunications (DGT), which took firm steps to catch up in technology. In 1962 the DGT beat several European neighbours to be involved in the first international television broadcast from the US via the Telstar satellite.

In 1974, the DGT was separated from the Post Office. With lavish funding and government support, the department established itself as one of the most forward-thinking telecoms businesses in Europe. France was one of the leading forces in the launch of the first European telecommunications satellites during the 1970s, and launched the first digital exchange in Europe in 1978. Another major innovation was the introduction of Minitel in 1983. An early precursor of the internet, the service allowed ordinary consumers to look up phone numbers and access local events and services via home terminals. The first French telecommunications satellite, Telecom 1A, was launched in 1984. Cellular telephone service began in 1986 with Radiocom 2000.

In 1988, the DGT was reorganised as France Telecom and was granted independent status in 1991, state-owned but free from direct government control. The company joined forces with Deutsche Telekom and Sprint in 1993 to launch international business communications service Global One three years later. Also in 1996, FT launched its own internet service, subsequently branded as Wanadoo. The following year, the government sold an initial 20% stake in the group to the public, in one of the country's biggest ever privatisations.

As European telecoms industries were deregulated in 1998 and 1999, FT and its peers scrambled to build their presence in other markets. FT agreed to partner with Deutsche Telekom to launch fibre-optic cables throughout Europe, but the plan was halted by a series of rows over each company's international ambitions. In particular, FT was angered by DT's intervention in the bidding war in Italy over that country's national service in 1999. Telecom Italia had attempted to engineer a merger with Deutsche Telekom to fend off a hostile bid from Olivetti. Alarmed by the power this would give DT in the European marketplace, FT sued the German company and attempted a takeover of leading German mobile operator E-Plus in retaliation. The bickering was resolved when Telecom Italia's shareholders rejected the DT merger in favour of Olivetti, while E-Plus's key shareholder BellSouth rejected FT's advances.

Instead, France Telecom turned its attention to the UK, paying $5.5bn to back local cable company NTL's purchase of the domestic telephone network being sold off by Cable & Wireless. As a result, FT indirectly became the biggest UK fixed line telephone service in the UK behind BT. Its position was strengthened still further in 2000 when FT clinched the deal to buy the UK's #3 mobile service, Orange, for £25.1bn. It later announced that all of its various mobile operations, including those in France, would be rebranded as Orange during 2001. At the end of the year France Telecom's internet business Wanadoo bought up UK ISP Freeserve from Dixons for £1.6bn in stock.

It was a generally busy year for the group. Also in 2000, France Telecom acquired a 28.5% stake in German mobile service provider Mobilcom for E3.74bn ($3.6bn). Meanwhile Global One was beginning to fall apart as a result of disagreements on strategy between the three partners, especially after FT and DT's row over Telecom Italia. In 2000, FT bought out its two partners, paying $4.3bn to take control of the business. Later that year it became the majority shareholder in global data communications network Equant, and merged the two services under the Equant banner. At the close of the year France Telecom paid $252m to become 71% owner of Egypt's largest mobile phone company, MobiNil.

In 2001 France Telecom floated around 15% of Orange UK's shares. When the IPO was first announced in 2000, it was thought it would be Europe's biggest ever, but France Telecom later cut back the offer price to reflect the slowdown in the mobile phone industry. As the dust cleared from the industry's acquisition frenzy, the group was forced to write-off huge sums in goodwill after share values collapsed at several of the group's investments, including Equant, UK cable company NTL, Telecom Argentina and German mobile division Mobilcom. For fiscal 2001 France Telecom reported a huge net loss of E8.3bn, while net debt had risen to E61bn by the end of the year.

During 2002 the problems at Mobilcom increased as a result of bitter disagreements between France Telecom and local German management. Mid-year FT withdrew any further funding from Mobilcom, a move probably designed to force the company into bankruptcy. Mobilcom retaliated by releasing confidential documents showing that France Telecom's chairman Michel Bon had contracted to fund the German company until 2010. Embarrassed by the row over Mobilcom as well as France Telecom's substantial debt burden which had now risen to a staggering E70bn, Bon resigned in September 2002. (The German government later bailed out Mobilcom with E400m of loans). Meanwhile the French government agreed to assist France Telecom with its debt mountain at the end of 2002, by offering to loan the company E9bn in cash to help it through an impending cash squeeze. Interest payments on its debt alone cost France Telecom some E15bn in 2003.

The group reported strong preliminary figures for 2002, boosting confidence that it could shake off its debt burden. It took advantage of investors' initial relief to put through a huge charge to wipe its slate clean of various disastrous investments, writing off E7.3bn of value against Mobilcom, E4.4bn against Equant, E1.7bn against NTL, E1.6bn against Wind, E900m against Orange Switzerland and around E2bn against investments in Africa and the Middle East. Two weeks after the prelims, France Telecom reported an eye-watering E20.7bn loss, almost a third higher than that declared a year earlier by Vivendi Universal, then a record in French corporate history. (Just one day after France Telecom's announcement, Vivendi reclaimed the record with an even higher loss). In fact the group's underlying financials were not at all bad, with operating income up by almost a third. "We had to turn a page and that page has now been turned," said new chief executive Thierry Breton of the write-off. Performance continued to improve over the following months.

In 2004, the European Commission announced that it would conduct an investigation into the close financial relationship between France Telecom and the French government during the 1990s and the company's financial crisis in 2002. It subsequently ruled that the E9bn cash loan (offered in 2002 but in fact never called upon) was legal. But the government's decision to waive payments of around E1.1bn of tax owed by France Telecom between 1994 and 2002 was not, and the company was ordered to pay back the sum. The negotiations involved in that transaction obviously stood France Telecom's chairman and CEO Thierry Breton in good stead. In February 2005 he was named by Jacques Chirac as the French government's new finance minister. His successor at France Telecom, Didier Lombard, launched a comprehensive restructuring of the group over the next two years, appointing a completely new senior management team, and establishing Orange as the group's principal brand outside France in 2006.

Orange is no stranger to international communications. The service was first launched in 1994 by Hutchison Telecom, a joint venture between Hong Kong conglomerate Hutchison Whampoa and British Aerospace (third partner Barclays Bank pulled out in 1995). The new service, initially known as Microtel, was designed to mark a quantum leap forward, the first national digital mobile service anywhere in the world. Branding agency Wolff Olins and ad agency WCRS worked with Hutchison to come up with an equally distinctive name for the product. Renamed Orange, the service enjoyed an extremely successful launch, supported by a stylish marketing campaign which made the most of the company's unusual branding. "The future is bright," promised the advertising. "The future is Orange."

Another great strength was Orange's very straightforward, user-friendly phone usage options, very different from the complicated usage-bands offered by its competitors. A major force behind the company's growth was the driving ambition of Hans Snook, Orange's CEO since 1994. A former backpacker who ended up in the telecoms industry almost by accident, he was renowned for his unconventional, even off-the-wall, new age spiritualism, but it was exactly this semi-mystical aura which made the Orange brand so compelling. Despite being the fourth UK service to launch, the company soon overtook #3 player One 2 One. The company floated part of its equity in 1996 and by the end of that year subscriber numbers had more than doubled to 785,000, passing the 1m mark in July 1997. UK growth continued to accelerate in 1998, placing Orange in credible 3rd place behind Vodafone and Cellnet. That year, BAe reduced its stake in the group to 5%, while floatation reduced Hutchison Whampoa to 49%. At the end of the year, Austrian service One, in which Orange held a 17% stake, launched. The following year, Orange subsidiaries in Switzerland and Belgium launched their own services, while Hutchison Whampoa licensed the brand for its own subsidiary operations in Israel and Hong Kong. Meanwhile the UK market continued to explode. By the end of 1999, Orange's UK customer base was heading towards 5m.

Hutchison Whampoa was by now looking to cash in its own shares, equivalent to 44% of the company following the sale of a further stake in 1999. Coming a few months after the sale by Cable & Wireless of One 2 One, this generated a frenzy of activity among telecom companies keen to snap up Orange. Germany's Mannesman, already a leading mobile operator in Germany, was the preferred bidder, agreeing to pay £19bn for the British company in late October. But news of the deal simply put blood into the water. The financial markets marked down Mannesman's shares, believing it had paid too much. As a result Vodafone, fearing competition from a combined Mannesman-Orange, announced it would take the opportunity to launch a hostile bid against the German company.

As Mannesman began the process of fitting Orange into its corporate structure, Vodafone hammered away at Mannesman with a series of ever-increasing bids. By the beginning of 2000, Vodafone's chance of victory was looking more certain, and this came the following month when the German company finally conceded to a massive £105bn offer. The main regulatory condition of the deal was that Vodafone would have to demerge Orange to avoid a monopoly in the UK market. After several months of deliberation over whether to float or sell Orange, Vodafone entered negotiations with several bidders in April. At the end of May 2000, France Telecom, always one of the favourites, agreed to buy the company for £25bn in cash and shares.

It ended up as the best possible deal for Orange's existing management, then still led by Hans Snook. France Telecom announced it would gradually pool its other mobile interests into Orange. These included France's leading mobile service Itineris, as well as a collection of other interests around Europe, promising to make the company Europe's second largest mobile phone business with a market value of around E150bn ($136bn). In early 2001, France Telecom floated around 15% of Orange's shares. When the IPO was first announced in 2000, it was thought it would be Europe's biggest ever, but France Telecom later cut back the offer price to reflect the slowdown in the mobile phone industry. A decline in consumer uptake plus negative market sensitivity towards the massive prices paid by telecoms companies for 3G "next generation" licenses worked together to pull over-inflated share prices back to earth. The IPO caused shockwaves throughout the industry after the share price ended its first day below its issue price. The rebranding exercise kicked off with the renaming of Danish service Mobilix in May 2001, followed by French services Itineris and Ola in June.

However during 2002, Orange's relationship with German affiliate Mobilcom gradually fell apart. France Telecom repeatedly clashed with the German company over management decisions and policy. When Mobilcom refused in 2002 to sack CEO and former founder Gerhard Schmid at France Telecom's request, the French company said it was cutting all ties to the business. In September, funding was cut off, a move that looked almost certain to force the German company into bankruptcy. Schmid eventually stepped down, but Mobilcom then released confidential documents showing that France Telecom's Chairman Michel Bon had contracted to fund the German company until 2010. Embarrassed by the row over Mobilcom as well as France Telecom's substantial E70bn debt burden, Bon resigned in September 2002. Shortly afterwards the German government bailed out Mobilcom with E400m of short-term loans. France Telecom later patched up the row, forgiving loans of almost E7bn. The German company continued to operate as a separate entity. However the row resurfaced at the end of 2004. Gerhard Schmid filed for personal bankruptcy in 2003, and his administrators issued a lawsuit for E4.3bn against France Telecom in December 2004, alleging that the French company had failed to fulfil its contractual obligations. Jean-Francois Pontal, CEO of Orange, announced his resignation in December 2002. Solomon Trujillo was appointed as his replacement in early 2003, but he too left just 15 months later.

In 2005, following a three-year investigation by France's antitrust regulator, Orange was found guilty of colluding with rivals SFR and Bouygues to fix call charges at an artificially high level between 1997 and 2003. The company was handed a E256m fine. Also that year, France Telecom announced plans to establish Orange as its main commercial brand outside France, becoming the umbrella for the group's Wanadoo internet service as well as the mobile service. See full profile for current activities


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