Orange bets on mobile financial services, energy and B2B services for its digital future – Projects revenues of US$2-300 million in 2-3 years
11 May 2018
Three of Africa’s largest mobile operators – MTN, Orange and Vodacom – have all sketched out strategies for digital transformation in Africa. Others are either leaving the continent or dealing with it piecemeal. This week Russell Southwood spoke to Thomas Chalumeau, Senior Vice President Strategy and Development, Orange Middle East and Africa about what it has planned.
Q: What’s the big picture look like in terms of Orange’s digital business in Africa?
A: We want to launch two new businesses in Africa and the Middle East and expand an existing area: 1. mobile financial services; 2. Energy and 3. Develop our B2B services. There are also a couple of other areas which I’ll come on to later. We will build these businesses by working with external partners. Bruno Mettling, President, Orange Middle East and Africa said two years ago that he wants the company to be the partner for digitization on the continent.
Q: Isn’t there a problem with digitization for Africa’s mobile operators? As data use increases with things like LTE, new higher capacity networks are needed. The returns from data are much lower than from voice in the early days. How do you square this circle?
A: All operators are struggling to increase their market share against each other. In Africa there is a 10-20% CAGR on data and internet and this is a positive trend. For the last 12 trading months we have seen a 5.5% annual increase in revenues.
We are concerned about the battle for ARPU and are looking for increased profitability per customer. We are building this through more services: financial transfers, deposits, credit, savings and so on. We will chase revenue share agreements with digital partners. So for example, TV services are a simple way to monetize networks and we partner with Canal+ and irokotv.
The revenue share will be 40-60% of revenues but will be different for different partners. This is a new source of revenues and will be worth US$2-300 million in 2-3 years time.
On the CAPEX question specifically, globally Africa is the continent that needs most (infrastructure). We are interested in both passive and active infrastructure sharing and will accelerate discussions with partners. We want to build a stronger agenda in this area.
We need to put CAPEX into Africa and it will create strong economic savings for the continent. We need to look at how we can better mutualise our networks through cloud-based services and virtualization. All these are ways to make savings. We need to find ways to better sequence our investments so that we can integrate 3G and 4G. This will also deliver savings.
Orange like most operators in Africa has its own fibre network. Each local entity has its own network. This is an opportunity for us to increase revenues through our wholesale business. Working with people like Liquid Telecom we can provide a unique end-to-end fibre network across the continent. This model creates significant additional revenues.
We are doing all of this to sustain the explosion of data. 5G will be expensive and therefore we have to plan on optimizing our costs. This will happen progressively through to 2020. It will be a big change and we need to be at the top of our game (in every country we operate in) to monetize it.
Q: So will you be a player (developing your own business or businesses) or simply a platform in the process of digital transformation?
A: We want to be a major digital platform for our customers. Therefore what do our customers expect from us? Obviously Internet and data and business offerings for corporate clients like security, data storage and IoT. For consumers, they will want mobile financial services and connectivity but in five years time, the company will have a major focus on energy supply.
Energy is one of the main essential needs of our African customers. On the continent, there are 300 million people with no access to power. Each one is spending US$10-15 a month on things like petrol lamps, diesel and so on. These are low quality and expensive.
Over the last 2-3 years there has been a major technical disruption in the energy industry. There has been a sharp decrease in the cost of solar panels and batteries. Also you can now pay for this kind of service using Orange Money.
(Orange Energie was launched in December 2017 DRC with partner BBOXX (see video: It has subsequently launched with D Light in Madagascar and Niwa in Burkina Faso. Subscriptions start at US$15.)
These two things (energy and financial services) will increase trust in the Orange brand overall and reduce subscriber churn. I want to help our two brands –Orange and Orange Money acquire new customers.
Q: Africa’s mobile operators are very used to running everything themselves. How will this new world of partnership work, particularly with a new business like consumer energy?
A: It’s a lot of cultural change. It’s a totally new segment but it’s based on the strong logic of co-operation with external partners. We have strong revenues and markets and this will be the future of telecoms operators. You need agility, some knowledge and the ability to invest. The (expansion) into energy has been a consensual decision with local teams (in Africa). It’s much more bottom up than top down as a decision. We know there is a market out there.
In practical terms, there are some challenges. With the focus on solar Pay-As-You-Go, the activity needs to be handled by teams who are building the competences to do it. Both Orange and its partners need to treat it as a separate operation with dedicated teams. If you don’t, you’ll kill the business. We’ve spent two years researching every aspect of it and finding the right partners. Now we need to let this activity live its own life and see whether (what we learn) makes it possible to make other solutions scalable in the same way. The big challenge is prioritization. We need to make three big bets and through them have the role of local distributor.
Q: So what are your ambitions for digital services?
A: These our three big bets: new B2B services; mobile financial services; and energy. There are also other areas of economic revenues for telco operators like content and TV, where it is easy to get partners and we will be marketing and distributing. These are interesting in terms of revenue generation and profitability.
There are also new potential areas like e-government, e-health, e-agriculture and e-education. These are much harder and we need to find partners. There are lots of small local players. Each takes time to develop. This is much less easy than the previous categories I mentioned. All the big competitors are struggling to enter these new spaces except through a premium model or under corporate social responsibility.
Q: How do you work with partners as a platform? My own experience with the larger mobile operators is that the channel is both bureaucratic and not good at launching multiple products.
A: All operators are experiencing the shift from USSD to apps plus very soon there will be chatbots. What is needed is a real ecosystyem of digital applications. Previously there has been a very low audience of active users of apps.
What we want to do is increase the users of Orange et Moi (My Orange) and by doing this increase the overall audience for all digital players. We have a strong marketing policy for smartphones, particularly low cost smartphones: for example, US$40 for a 4G handset. Operators have also neglected featurephones and we’re making special offers on them giving users a small quantity data with the phone.
The strategy is to increase the penetration of Orange Apps. So for example, we have recently invested into an API platform in Nigeria called Africa’s Talking. The strategy is based on our own apps for own customers.
We need to simplify access to our API’s but we’re not far away from where we want to be. We have tried reinforce corporate entities having the power to negotiate multi-country agreements but it’s still quite painful and we still have to convince the opco’s. We have identified a team at organizational level to increase revenues from APIs and they have targets. You can now get a single Pan-African contract with the Orange opco’s through Bizao (See Issue 917) Also local teams have been incentivized to increase API revenues. New business needs new governance and ownership. We’re all struggling with that.
We also have a 6% shareholding in Jumia (worth 70 million euros). This is important for us as it offers a megastore of services on one click. It’s a distribution channel for our own services like insurance, bundles, devices and handsets. Clients pay for their services using Orange Money.
We’re also learning what it takes to be a digital player in Africa. We may look at investments with Jumia in start-ups through Orange Digital Venture. We need to learn from the digital stream and increase the number of devices and bundles sold through Jumia.
Q: Would Orange invest in something like Jumia again?
A: Yes, definitely. Jumia is the first unicorn in Africa but new Jumias will appear in the market and we will want to partner with them.
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