2 May 2014

Great blog post from Network Africa: I want Orange to be seen as the good guy in Africa

Marc Rennard,
Executive vice president of Asia, Middle East & Africa
Originally posted on Network Africa, Written by Benny Har-Even

Marc Rennard, executive vice president of Asia, Middle East & Africa, Orange
2012 was a good year for Orange in Africa as its executive vice president for the region, Marc Rennard, enthuses: “We had three targets: income growth, EBITDA rate, and the free cash rate (EBITDA minus capex). I beat all my targets so my personal bonus will be good!”
But that doesn’t mean it’s plain sailing for the company as it looks ahead. When asked about the key challenges over the coming months, Rennard immediately names one country which he describes as “very important” in his portfolio: Egypt. Rennard is the chairman of one of Egypt’s leading cellcos, Mobinil, which is 94 per cent owned by France Telecom. With 32 million subscribers, he says that Orange has more customers in Egypt than it does in France.

“It’s a big country and the economy is down. It’s key for me. Following the Arab Spring, the eviction of the president, and then the debate around the opposition, trust in this country has not returned. International investors do not want to come back today. Nobody wants to leave Egypt, but everybody has reduced their stake in this country. I anticipate that we could recover growth momentum at the end of 2013, but to be frank I said that in 2012, so I was wrong.

“But what is for sure is that it will recover because it is an important part of the world. It helps to guarantee stability in the Middle East. It’s [a bridge] between Africa and the Middle East and it’s a peacemaker. So we trust this country in the long term and we have a lot to do there.”

But Egypt isn’t the only thing that perhaps keeps Rennard awake at night. He’s also concerned about Orange’s capacity to rollout 3G networks, and the technical and human resources that go with that. “What is also tough for us is how to guarantee that we will create a gap between us and our competitors in terms of quality of service regarding data. Everybody is able to make voice networks work. For data it’s more complex. And as we are a big group there’s a lot of potential for innovation. We have to increase loyalty. In Madagascar [for example], because of all the customers who have Orange Money we have increased ARPU by 20 per cent and loyalty. But it’s tough and it costs money.

“I would prefer to have one country less, even to sell a country, if it meant [the networks I have are] the biggest and best in terms of quality, and ones that were appreciated by the customer. That’s the only way to attract the customer and to be the reference network. Each time we are leader it’s tough for the other two to recover; that’s why I fight and very often it’s to our cost. I absolutely want to keep the number one position because MTN is pushing to get this but I don’t want to let them have it.

“I have discussions with my group CFO and my views don’t always carry. But my belief is that we should invest more rapidly, more strongly in a more limited number of countries, and get the number one position. For example, it would be better for me to spend five million more in capex to implement in Congo or in Ivory Coast than to have South Africa or Guinea to manage. I don’t care if I don’t have South Africa. I prefer to spend capex to invest more in Congo than to get a new country.”

Too early for LTE in Africa?

While Rennard talks about the importance of 3G, like other major operators on the continent Orange is beginning to rollout 4G and already has deployments in Botswana and Mauritius. But is it too early for LTE in Africa given that many countries don’t even have 3G?

“Each time we say it’s too early we are wrong. I remember when I joined this industry in 2004, Mauritius decided to launch 3G and I said ‘Stop! That’s a crazy investment, it’s too early’. I was right, it was too early – but only by two or three years. It should have been done in 2007 or 2008, not in 2004. With [hindsight] you can choose the right technology, but if you do deploy early it’s not so important.“With LTE you have theoretical speeds that are very high when you are alone around the cells. But when you have 10 people communicating and exchanging data you will saturate the cells. And you need a lot of cells. So I think 2013 is not the year of LTE. It’s the year of demonstration at events. 2014 or 2015 probably will be the year.

“Nonetheless, you need to prepare and optimise your networks today – otherwise they will crumble as the traffic increases. Yes, we have a lot to do in order to be more successful and more professional in terms of backhauling the transmission. Take the DRC as an example. We have the right licenses and the frequencies for LTE. Is the immediate need to develop LTE? Or is the immediate need to enlarge my 3G+ network and to improve the backhauling plus the international capacity? We can talk about 3G, 4G, 5G, 7G – whatever you want – but if the submarine cable is not working, you will not have the speed.”

Fibre is now a big weapon in Orange’s technology arsenal for Africa. Earlier this year the operator’s ACE submarine cable system began to offer services to the first 13 countries. This will certainly help Rennard’s stated aim of improving international as well as enterprise connectivity. But will it also mean that Orange will give up on other technologies such as satellite?

“We have satellite in almost all countries except perhaps Ivory Coast. We use a lot of satellite and in Congo we’ve used it forever. But to flow some gigabytes of traffic outside a country, it’s not enough. It’s costly. But to flow voice and SMS, for backhauling, and to flow part, or even most of the traffic for redundancy for example, it’s okay.

“I am not against satellite. I come from that industry – I was managing director in France of TDF and managed TDF 1 and TDF 2. Satellite is more efficient when it works because it’s point-to-multipoint. But it’s not enough. I have had issues with satellite in Guinea, in Niger, and in some countries in southern Africa where we lack capacity to develop the internet.”

So if the aim is to offer connectivity very quickly and at an affordable price, what about other wireless technologies such as WiMAX? While Rennard admits that he is not a pure technician, as an informed observer he believes WiMAX has had its day and that GSM 3G and LTE will be the future.

“Let me give you an example. In Congo we bought a global license for 2G, 3G and WiMAX. We have just managed to give back our WiMAX license and to get an LTE license. I will not build a WiMAX network. We hesitated but I made the decision in June 2012 not to go ahead with our WiMAX license. We launched LTE not for the consumer but for the corporates.”

Despite this, Rennard also says that when Orange launched WiMAX in Mali it was the first in the France Telecom group to use the technology, and it works very well. But in the light of LTE, he no longer sees it as a long term proposition. Earlier this year, he held a meeting with all his CEOs and told them that Orange’s priority is to get licenses and frequencies for LTE.

A hybrid market

3G, data, LTE – all of that implies that the operator’s goals in Africa now revolve around offering subscribers more services in a bid to increase ARPUs and loyalty. But isn’t it harder to lock-in customers and sell them more services in a market that is 98 per cent pre-paid? Rennard doesn’t agree. The African market is actually a ‘hybrid’ one, he says.

“It’s post-paid without risk so it’s not pure pre-paid. The rule in this market is pre-paid, so why would we want to change it? I prefer to focus on investment in process, to have the best quality of service and even with pre-paid, to have the customer stay with us rather than stick them through a contract.

“You have to install and improve your billing system, and you have to take the risk of bad debt. Ninety-four per cent of our revenue is going through top-up. It’s too much. We want to reduce that because we have no more scratch cards available on the streets.”
One market segment that Orange has set its sights on moving forwards are the enterprise users. Like many major operators across the world, it has setup a dedicated division and hopes to gain increasing business for it in Africa.

“Orange Business Services is for a limited number of customers who are big. It’s one of my priorities in 2013, and probably one of the parts of the business where I am not excellent because [there are] fixed networks and we have all these technical solutions with cloud computing, VPN, etc. We could do more. Where we are an incumbent fixed operator we are good – in Mauritius, Senegal, Ivory Coast, Jordan, for example.

“But where we come as a mobile operator – such as Madagascar, Cameroon, etc – life was too easy for the guys. For a number of years we have had 25 per cent growth per year. If you only make 22 per cent you’re still the king, right? If your growth is three per cent and you make minus one per cent, you’re not the king. So, people were used to having easy growth. Business to consumer was very easy – it was marketing, it was advertising, etc.

“Now we have to pay more attention to this with customer base management and to focus this year on business to business. If there’s one area that we have room for improvement it’s this one.
“In some countries, such as the DRC, all the hotels, factories, etc, have the solution to connect – they have their own VSAT. It’s not their job to manage VSATs but they do it because they have no alternative. There is not one fixed line in the country and no submarine cable. They want us to provide a solution so I think there’s room for growth in the B2B market. I am not happy with my performance in the B2B.”

Rennard berates himself, possibly unfairly, with that last remark. Clearly, there is a great deal of personal passion in his approach to connecting Africa. “We would like Orange to be viewed as a good guy who has a long term perspective. Meaning that we have achieved and organised sustainable growth, one that has a good network, a good quality of service, and that we take care of corporate social responsibility. Because we cannot live as a foreign investor and as a rich company (we’re very rich) in a poor environment without contributing visibly to the development of that country.

“I would be happy to have the possibility to be number one everywhere but with a positive judgement from the population. It’s the only way to be alive in 10 years. If not, one day a government will say: ‘What is all this cash that is going back to France?’ We have to prove that we are a good player for the population.

“And it’s in my heart and my personal interest now. I have a big project, that I have launched in Ivory Coast and other countries, to make sure that in each village has at least one medical dispensary, one school and one point for water. When you do that, you make your life successful.”