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Morningstar | Orange Generating Revenue Growth Despite Increased Competition in France

We view Orange as one of the prime beneficiaries of the movement to converged services (the merging of the traditional triple play of fixed-line telephony, broadband, and pay television with wireless telephony). When service bundling is combined with 4G and fibre, which help to differentiate its networks, we think Orange is well positioned for the macroeconomic trends hitting European communication markets. Orange now has 6.1 million convergent customers in France or 60% of its retail broadband base, 3.1 million convergent customers in Spain or 85% of its retail broadband base, and 1.2 million convergent subscribers in Poland or 55% of its retail broadband base. Importantly, its average revenue per offer, or ARPO, is increasing. Additionally, convergence is driving lower churn, which increases the lifetime value of a customer. Likewise, its fiber deployment is gaining traction, and Orange now has 2.4 million customers subscribed to its fibre product in France, and at the end of September 2018, it passed 10.9 million homes. Similarly, in Spain, its integration with Jazztel has performed better than expected, and it now has 2.7 million fibre subscribers, passing 13.3 million premises. Orange is also enhancing its wireless footprint in Africa. The firm exercised its option to increase its stake in Meditel in Morocco and began to consolidate this asset in July 2015. In 2016, it acquired operations in Liberia, Burkina Faso, and Sierra Leone, and it also acquired Tigo in the Democratic Republic of Congo to increase its size there. Orange has operations in 20 African countries, positioning it well to participate in one of the fastest-growing regions in the world. We project Orange’s focus on selling higher amounts of data through faster networks based on fiber, and 4G wireless will lead to improving revenue and EBITDA margin trends. These gains along with reducing capital expenditures, especially after 2020, will generate higher free cash flow that will enable the dividend to be maintained and grow over time.