Orange Not Going Down Bouygues’s Discount Path as Stock Dips
“We’re maintaining our high-end strategy because we’ve seen consumers are willing to pay more for faster speeds and new services,” Delphine Ernotte, head of France for Orange, said in a telephone interview.
Orange dropped for a second day in Paris after France’s smallest fixed operator unveiled a 15.99-euro ($22) monthly tariff for stripped-down broadband and telephone services. The move prompted questions on whether rivals will follow suit with fixed-line price cuts, and shows how French carriers are moving further apart in their strategies to win and retain customers. Orange will continue to compete for users who want cheaper options with its Sosh brand, Ernotte said.
Orange has shifted focus in the past year back to its fixed-line business from mobile in its home market as price wars weigh on its wireless earnings. Discounts in France continue to cut into profits almost two years after Iliad SA (ILD) started selling mobile subscriptions starting at 2 euros.
Bouygues Telecom, a unit of Bouygues SA (EN), joined the low-cost fray, pulling some services out of its fixed packages under the B&You brand to cut in half the 30-euro average monthly market price for broadband, phone and Internet services grouped together.
Bouygues’s tariffs could cut Orange’s earnings before interest, taxes, depreciation and amortization by about 110 million euros a year, Jefferies analysts projected yesterday. Orange is expected to generated 12.7 billion euros in 2013 Ebitda, which may drop to 12.2 billion euros in 2014, data compiled by Bloomberg showed.
Orange is betting that it can attract customers and charge more by including innovative services such as a high-end TV remote control. To stop consumers from moving to discounters, the Paris-based company also started a separate brand called Sosh, which offers at cheaper prices.
“We’re covered at both the high and the low ends of the spectrum,” Ernotte said. “The current agitation doesn’t change our perception of the market.”
The shares slipped 0.5 percent to 9.70 euros at 10:53 a.m. in Paris, adding to yesterday’s 3.9 percent decline. They are still up 16 percent this year, valuing the company at 25.7 billion euros.
Orange has predicted that pressure on its profits in France will gradually ease next year, helped by the spread of more expensive offers based on speedier Internet technologies -- 4G in mobile and fiber in fixed. While the company has expanded worldwide into markets including Spain, Egypt, Poland and Kenya, it still makes more than half of its sales in France.
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