French telco giant consolidates its African holdings to prepare the way for further expansion.
As French Telco giant Orange contemplates gaining a footprint in Africa’s two leading economies—namely Nigeria and South Africa—telecommunications analysts see acquisition as the best option for the tenth-largest mobile network operator in the world. Nigeria is home to four major operators including MTN Nigeria, Airtel, Globacom, and 9Mobile while South Africa has four cellular providers: Cell C, MTN, Telkom and the Vodafone Group’s Vodacom.
Hendrik Malan, CEO of African business consulting firm Frost & Sullivan, told Global Finance that both countries have good acquisition options for a potential global entrant including 9 Mobile in Nigeria and MTN or Cell C in South Africa. “But this would depend on the approach Orange would like to take in their market entry. Mobile virtual network operators (MVNOs) have experienced limited success on the continent, so this will most likely not be considered a workable entry model by Orange,” he said.
Malan added: “Given the challenges experienced by the Mobile Network Operators (MNOs) during the Covid-19 pandemic, acquisition assets could come at a very palatable price given that the two mentioned examples have both experienced challenges prior to Covid. Cell C is in the process of laying off a very substantial percentage of their staff. This would be an ideal time for Orange to enter the market if they lead with an M&A strategy.”
Although both Nigeria and South Africa are considered highly competitive markets, they are large and retain considerable revenue potential from mobile broadband and value-added services (VAS), says Dr. Henry Lancaster, a senior analyst at BuddeComm, an Australian independent research and consultancy company focused on the telecommunications market. “Orange’s interest in these markets is not necessarily new, but it will take some time to work out how the company can enter them, and what investments will be required. There is little doubt that the group can afford to expand, particularly since Africa and the Middle East is the business region which for some years now has provided the fastest revenue growth.”
“Within Africa, Orange Group has traditionally concentrated on the francophone countries. They tried for example to break into the Kenyan market through investing in Telkom Kenya. This did not work out well, and Orange sold its 70% interest in Telkom Kenya in late 2015. The group’s move into other markets in the region has been anticipated for some time despite these earlier setbacks. Orange already has a presence in Nigeria, having invested in the e-commerce enterprise Africa Internet Group (AIG), in the startup Youverify (via Orange Digital Ventures Africa), and in 9mobile,” says Lancaster.
In January, Orange brought together all its Middle East and Africa activities into a single company, called OMEA, or Orange Middle East Africa, “to create a separate entity and provide the Group with various options for growth,” the company said as it inaugurated OMEA’s headquarters in Morocco. OMEA operates in in 15 African countries disproportionately found within French-speaking nations located in the West Africa region and three Middle Eastern countries and boasts 125 million customers as of October 2019, more than 22 million of which are 4G customers. Orange’s Middle East and Africa businesses reported €1.67 billion (US$1.8 billion) of adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) in 2018, accounting for about 13% of the group’s adjusted EBITDA. In 2019, Orange posted an annual net income of $3.4 billion, a 45.89% increase from 2018 when it raked in $2.3 billion.
Orange is planning an initial public offering (IPO) of OMEA according to a Bloomberg report. The deal—with London and Paris being considered as potential venues—would be among the largest listings to come out of the Middle East and Africa this year.