ANALYSIS: Orange’s future still bright

Mobile phone operator Orange may have suffered a double blow but investors should not worry too soon, writes Sharon Marshall

Mobile phone operator Orange may have suffered a double blow but

investors should not worry too soon, writes Sharon Marshall



Orange, the darling of the City, the champion of the consumer, was left

feeling a little bruised last week.



First, the mobile phone company announced half-year results which met

with a less than ecstatic reaction from analysts. Second, it is parting

company with marketing director, Lisa Gernon, who has headed its

marketing operation since June 1994. Her six-month notice was given

before the results were announced.



Orange’s group director of commercial activities, Bob Fuller, has yet to

announce a successor for Gernon, who is ‘leaving to seek new

challenges’.



Gernon needn’t have gone so far: she probably would have found several

during the next year of Orange’s life. The company may still be claiming

‘The future’s bright, the future’s Orange’, but some of its investors

are not so sure.



Orange’s results last week were its first as a publicly-listed company.

It announced pre-tax losses of pounds 125.2m, compared with a loss of

pounds 88.8m the year before. Shares did climb 4p to 191p after the

results, but they are still well down on its flotation level of 205p and

their peak of 253p.



Some observers say the results mean that the future is a little bleak,

but this is an unfair analysis of Orange’s progress. Its flotation, five

months ago, may have attracted a frenzy of investors and been ten times

over-subscribed but it also came with warnings attached.



As a high-tech company, Orange was always going to incur huge expenses

from investment in new technology to help it compete in the rapidly

changing communications market. Capital expenditure over the six-month

period amounted to pounds 96m, of which pounds 87.2m was dedicated to

rolling out its network. Over pounds 1bn will have been invested in

expansion by next year. Orange has always positioned itself as a loss-

making company which is unlikely to break even until 1998 or 1999.



The colour of money



In fact, Orange is doing well in its David and Goliath battle against

Vodafone and Cellnet.



Its launch advertising through WCRS has established it as one of the

strongest brands in the new-technology industry. Its more recent hard-

hitting comparative advertising campaign against Vodafone and its

victory in the High Court, after Vodafone tried to sue, has helped to

position Orange as the champion of the consumer.



It will soon find itself without a marketing director, but as Gernon

points out: ‘Over the past two years the marketing team has achieved a

hell of a lot. We have award-winning ads, a product road-map and a

strategy already in place to take us through to Christmas.’



As managing director Hans Snook said at the announcement of Orange’s

results, the number of subscribers is also rising, with a further

194,000 people signing up during the past six months, taking the total

to 573,000. The number of customers deciding to drop the service is

falling. In the past 12 months it has lost just 17.6% of subscribers

compared with 18.1% last year. And subscribers are using the services

more, driving up revenue.



‘The thing is that everybody just expects everything that Orange does to

be stunning. These latest results were perfectly pleasant,’ says Simon

Rockman, editor of What Mobile and Cellphone magazine. ‘It is also very

clear that there are now three players in the market: Vodafone, Cellnet

and Orange. One-2-One is behind.’



For the first time, Orange is starting to face disenchantment from the

City and it will be the next 12 months which will be key in its fight to

regain its position as the wonder-kid of the stock market.



Marketing and advertising is likely to continue the hard-hitting

comparative theme, positioning Orange as the easily understood,

affordable service in a market of confusing tariffs schemes.



The firm is also pouring money into personal communications services and

wire-free communications. It has been mooted that it intends to build

its high street presence by buying the People’s Phone mobile service and

retail firm, but insiders say this is unlikely.



With the number of mobile phone users set to rise to seven million by

the end of the year, the future is bright in the mobile phone industry.

Disenchanted shareholders might decide the future could still be Orange.



------------------------------------------------------------------------

Telephone line-up

------------------------------------------------------------------------

                         Total subscribers*    Ad spend 

                                               (Register-MEAL)

                                               (pounds)

Vodafone                 2.55 million           6.2m 

Cellnet                  2.4  million          11.7m

Orange                   573,000               17.3m

One-2-One                440,000                8m

* Source: Global Mobile magazine survey

Figures give total digital and analogue subscribers

------------------------------------------------------------------------



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