Pyramid Points - Orange plans MVNOs to address new markets
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ARCHIVE  2013
Orange plans MVNOs to address new markets

May 9, 2013

The success and mass deployment of Orange Business Services (OBS) seems to be giving France Telecom more to think about than just enterprise connectivity and services. While FT is currently operating in 32 countries as a mass-market telecom network provider under its Orange brand, OBS covers 220 countries across the world and has been one of the most successful entities within Orange.

Now, the parent company seems to be trying to capitalize on some of this success by coupling it with an MVNO and e-commerce strategy to overcome traditional barriers to market entry, most notably licensing.

Orange intends to fill gaps in its geographical coverage through a new entity called Orange Horizons (see our previous blog on this topic). Launched in 2012, the subsidiary aims to develop new activities beyond the Orange footprint using a road map with two main axes:

Exhibit 1 : Orange’s dual strategy

Exhibit 1: Orange dual strategy

Sources: Pyramid Research

Understanding the e-commerce strategy

Orange’s e-commerce strategy is a departure for an operator that prides itself on its network and engineering core. Traditionally, FT has focused on its network expertise as a core competency and an important competitive advantage. However, new market dynamics, such as limited licensing and acquisition opportunities, as well as saturated markets are frustrating the company’s growth aspirations.

Orange is now looking to leverage other core competencies, such as marketing know-how, purchasing power and logistics, partnerships and brand equity to explore adjacent growth opportunities.

It intends first to approach new countries by launching m-commerce websites (for instance in South Africa), mobility services (such as Orange Let’s Go) and OTT content (StarAfrica). This test-and-go approach will raise brand awareness while enabling the operator to build a customer base.

If local regulations allow, the second stage would be to offer value-added services such as mobile broadband, M2M, Orange Money, mobile advertising and other mobility services.

In countries where regulations are still strict regarding MVNO activities, or in mature markets such as Italy or Germany, a move down the value chain into areas like m-commerce might be an opportunity to quickly leverage internal competencies and develop new revenue streams. Device sales alone, for example, could in developed markets add about 10% to telecom services revenue.

Exhibit 2: Device revenue and telecom services revenue in select markets, 2012 (US$ millions)

Exhibit 2: Device revenue and telecom services revenue in select markets

Sources: Pyramid Research Devices, Mobile and Fixed Services Forecasts Q1, 2013

Understanding the MVNO strategy

Moving into the MVNO space would allow Orange to extend its current footprint and offer country-specific value-added services while reducing its market entry costs.

In many markets, Orange’s brand name represents equity that the operator could easily leverage to build a fully fledged MVNO. For instance, Orange enjoyed a 30-40% awareness rate in Tunisia prior to entering the market as a mobile network operator (MNO). Equally, the brand benefits from its good reputation within the African diaspora in France as well as from hosting various sporting events, such as the African Nations Cup and the Euro 2012 football tournament.

Exhibit 3: SWOT analysis of Orange entering new markets as an MVNO

Exhibit 3: SWOT analysis of Orange entering new markets as an MVNO

Sources: Pyramid Research

Where is Orange likely to launch its MVNO activities?

Orange is currently bidding for an MVNO license in Togo, but it is also looking at Brazil, South Africa and Botswana. Its target is to enter at least one market by the end of 2013. Generally, Orange targets emerging countries in EMEA, mainly those where French, Arabic, Spanish or Portuguese are commonly spoken (for instance Angola and Mozambique, where Portuguese is spoken), as well as large markets from which it could potentially carve out a valuable slice.

These countries are both among the major sources of migratory flows into Orange countries and are destinations for Orange customers traveling either as professionals or tourists. That means Orange has a lot to gain from providing a seamless customer experience and integrated support.

Exhibit 4: Portugal, part of the existing Orange footprint, has many immigrants from Angola and Mozambique

Exhibit 4: Portugal, part of the existing Orange footprint, has many immigrants from Angola and Mozambique

Sources: migrationsmap.net, based on the Global Migrant Origin Database 2007

Exhibit 5: Togo has significant migration flows to Orange countries

Exhibit 5: Togo has significant migration flows to Orange countries

Sources: migrationsmap.net, based on the Global Migrant Origin Database 2007

Data access also represents an untapped market in emerging countries that Orange can easily develop as an MVNO. Recent 3G deployments coupled with lower-priced access devices and improving standards of living are making data services one of the few growth opportunities to tap into.

A plug & play model of the full MVNO

Orange has made it clear that it requires a full MVNO architecture for any deployment. This means that the operator plans to deploy its own core network and service platforms while using a third party’s — an MNO’s — access network. In principle, a full MVNO architecture would enable Orange to:

  • Introduce its own value-added services and charging policy, without depending on the MNO’s limitations
  • Easily and rapidly swap MNO network without :
    • Migrating the subscribers database, as it will be using its own home location register (HLR) in 2G/3G and home subscriber server (HSS) in 4G
    • Changing subscribers’ SIM cards

We can imagine Orange deploying a core network that supports 2G and 3G and is 4G-ready. Thanks to this plug-and-play logic, enabled by the full MVNO ecosystem, it can easily swap MNOs, either in order to reduce wholesale network charges or to benefit from the latest radio network technology.

Exhibit 6: Ownership of network functions in classic and full MVNO business models

Exhibit 6: Ownership of network functions in classic and full MVNO business models

Sources: Pyramid Research

— Houda Bostanji, Analyst


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