Orange Polska turns to other markets to boost its revenues, says CEO Fallacher

James Pearce
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CEO Jean-François Fallacher tells James Pearce how banking, energy and investments in fibre are helping Orange’s unit in Poland to overcome the loss of legacy revenue streams as the conventional market continues to shrink

Fallacher, Orange

Jean-François Fallacher: Revenue has been shrinking year
after year, our margins, our profit and our shareholder
returns as well

The industry is facing decreasing margins with pressure from OTT players impacting top-line figures, while the need to invest in ever-faster and more advanced infrastructure has become a real pressure from governments and customers alike.

For incumbents, the situation can be even more challenging as they try to leverage legacy products and wring the last drop of life out of them.

For Orange Polska, the former incumbent in Poland, the challenge is dealing with the shrinking conventional market. CEO Jean-François Fallacher says new lines of business and investing in infrastructure are its best routes to growth.

“The challenge we have is a big part of our business is legacy voice. This is a shrinking business and the reality is that it is past the maturity curve. You can take marketing action and remind them they have a line, but that is a fact of life. The churn will happen. If we want to grow as a company we need to replace this legacy business by upscaling other business units.”

In its financial results for 2015, Orange Polska saw revenues fall 2.9% to 11.8 billion Polish zloty (€2.66 billion) while its fixed voice business lost 7% of its customers and its fixed broadband business lost 6.1% of its base. This highlights some of the challenges it is facing, and why the CEO is looking at other channels.

The business units Fallacher identifies as providing the best opportunities are in mobile, fixed line – through fibre – and pay TV, all markets that telecoms providers are familiar with. But Orange Polska has reached beyond these, having launched both a mobile banking arm and gas and electric services in the last few years.

The banking arm, called Orange Finanse, was launched two years ago in partnership with Poland’s mBank. It was the Orange group’s first foray into the banking sector, and was deemed a success by deputy CEO Gervais Pellissier at the group’s Orange in Europe event in November.

In 2016, Orange bought a 65% stake in Groupama Banque in its home French market, though Fallacher denies that Polska had been used as a test bed for this model.

“When we rolled out banking services it wasn’t a trial – it was a real launch with a real mobile bank, with real customers,” he tells Global Telecoms Business. “Orange group looked at the model, but in France they are approaching it slightly differently as they’ve acquired a bank. But the idea is similar, so in a sense we’ve been the first mover – the ground-breakers.”

Steady growth

With 345,000 customers signed up so far, the numbers have been relatively small compared with Orange Polska’s core business – 16.4 million mobile and four million fixed voice customers. But they have grown steadily, and Fallacher believes Orange moving in to banking is a success in itself.

“It was an achievement just to set up the deal we have with a bank and our relationship with mBank has been positive,” he adds. “Customer ramp-up has been good. Perhaps the numbers appear small, but it depends what you are comparing it to. Compared with our core business, the numbers maybe aren’t that impressive. But it is young, it is fragile, and it is new. We are convincing people to open up a bank account – that is different.”

Finance isn’t the only new market that Fallacher and his team have turned to as a possible new revenue stream. In 2014, it launched Orange Energia (Orange energy) for both business-to-business and business-to-consumer markets. It is available for 95% of households in Poland, and offers a minimum 10% discount on energy bills as part of a bundle, the operator claims. So far, it has amassed 15,000 billed customers.

Fallacher says this could be tied in to Orange Polska’s future smart home strategy, which will see it sell internet of things devices, such as Nest smart thermostats, in its stores. But he admits this hasn’t started, nor has Orange Polska bundled in energy or banking with its convergent telecoms products.

“We are not trying to bundle it as one big package as it would not be reasonable,” he explains. “If you only had one big package, and switching all your products to one bank is perhaps not reasonable. We will look at bundling but across fixed line, TV and mobile, while the others might be options with some benefits. For example if you’re an Orange banking customer and you take out another product, you might see some benefits.

“With smart homes, we have devices we are selling in our shops and doing them in instalments, which link up to our mobile services. We believe it is a very nice and positive part of the ecosystem.

“We have not tied it in to our energy strategy but it is an idea we are looking at launching in the future. There are good products that can tie in to energy and work well together so we are looking at that.”

Transforming to an all-IP network

The transformation for Orange Polska is not just found in an expansion of its product set, but also in changes to its core telecoms business. In September, it announced plans to transform its entire operation to an all-IP network.

Nokia has carried out a pilot with the carrier in Warsaw which saw 4,000 subscribers moved from traditional telecoms services to a fully IP operation.

Fallacher is reluctant to discuss the plans, saying they were still in the early development stages, but he admits it will play a key role in transforming its fixed business.

He says: “Moving to all-IP is a major transformation for us, but we can’t talk about it much as we are currently experimenting with it. We have taken some geographical zones and we are looking there at what we can do, and there are many ways to do it.

“It is a very important transformation for us as a former incumbent because obviously copper is beautiful, it is there and in the ground, but it is expensive to maintain.”

The number of traditional fixed lines is decreasing year on year “and we might not have enough customers any more to justify the maintenance of those lines”, he warns.

“We may have copper in the last mile for a long time, but going as far as possible with IP will save us a lot of costs. So this is the whole IP transformation we are trialling and testing at the moment. Hopefully we will go into more serious developments in the coming years as I see it as a major transformation for our fixed business.”

This transformation is coupled with the deployment of a fibre-to-the-home network, currently available in 35 cities and offering speeds up to 600Mbps. At the end of September, 57,000 subscribers had signed up to use it, compared with 38,000 in the three months before. “There are sources of confidence in the fact that we are going to turn things around,” he says, admitting “on fixed broadband we are not doing that well in the Polish market – we could do better”.

He explains: “We are relying on DSL, and used to only rely on it. That was tough because Poland is a cable market and, with DSL, we could not compete in terms of speeds. We’ve started a fibre investment one year ago, so that is over now. Where we have deployed fibre, it is obvious we are extremely completive because the cable guys can’t compete on speeds.

“Because we are in an investment period, the numbers are ramping up, but they are still very modest,” he adds. “What I do like is that it is going up and net adds quarter-on-quarter are 60% higher, so the direction is good.”

But the investment is not just in building the fibre network, he says. “There is a big investment to be made in explaining what fibre is to the buyers, and get the right experience for the right communities. Gamers for example – they should want fibre, but we need to create this snowball effect.

“Right now, the snowball is not rolling on its own. We’re still pushing it, but at some point it will be carried by its own momentum. We’ve seen the same effect in France and Spain. We will invest 600 million zloty (€135 million) – and this is the plan for the coming years up until 2018. It is a third of our total capex,” he says.

Quarter of households by 2018

“We will be close to 1.5 million households by end of [2016], and by end of 2018, we will be close to 3.5 million – a quarter of households.

“It is one of the key elements of our strategy. In the situation we are in, it is not about protecting a dominant position. Just look at our numbers. Revenue has been shrinking year after year; our margins, our profit and our shareholder returns as well,” says Fallacher.

“We want to reach the bottom of that pool as a business. We are aiming to turn around the business, which is why we are going for this transformation.

“Convergence is one, investment in mobile is another, and the IP transformation is key as well. There are in the company all kinds of projects for efficiency and cost reduction, but we have transformation projects as well which are fundamental to our business model.”