The Future is Bright, but is it Orange?

In my essay, after a brief introduction to the company, I will analyse its external marketing environment (including Orange's socio-cultural, economic, technological and political environment). Then I will conduct a scan on the internal environment (discussing the oligopoly of the UK's mobile telecommunication companies) that will be followed by Orange's SWOT analysis and strategic recommendations based on the company's environment scans. Orange is the UK's third largest mobile network operator, providing its services to 21.7% of the whole market with 18 million subscribers (Key Note, Mobile Telecommunications, 2007). The company was founded at the dawn of the telecom revolution in 1994 by a Hong Kong-based firm Hutchison Telecom. In 1999 it was bought by Mannesman AG, however in 2000 Vodafone bought Mannesman and, due to legal regulations, they had to sell one of their mobile companies. They decided to sell Orange, which was acquired by France Telecom and has been operated by it since 2000. External Environment Those, who were in their early teenage years during the mid-90s (when the usage of the internet had started to grow and arrive to western households) would have just left higher education and entered the employment market. They were the last wave of the so called Generation Y and they were the first ones growing up with the internet in their households. This generation was the engine of the Web 2.0 boom in the mid-2000's; with creations such as Flickr, Myspace, Facebook, Twitter and YouTube, and they were the ones who first started to use the internet as a tool for active communication (online networking sites, blogging, sharing videos and photos) instead of the older e-mail and Instant Messaging technologies. For them their mobile phones were not just for talking and texting, they became an essential part of broadcasting every important moment of their lives. There is another relevant change in society: even though Britain's population is slowly growing (as well as the number of households) with more than 500,000 immigrants each year - it's ageing as well. According to the Office for National Statistics (ONS) by 2033 the age structure of the UK will go through dramatic changes. The number of people in retirement age will be higher than the number of children under 16, while the rate of the working age population will fall from 65 percent to 59 percent. The trends in age will not be the only factor that changes during the next few decades; the ONS's statistics on migration, the rate and the number of non-EU immigrants has been ONS Population Estimates and Projections increasing since the early 90s and this tendency still hasn't stopped. The net migration of the UK in the last ten years was 150,000 in each year, and most of the average 500,000 people were coming from outside of Europe. The British economy has suffered one of the biggest losses in the world during the Credit Crunch causing a significant slowdown in consumer expenditure. The latest GDP figures published by the ONS on the 23rd of October have shown that British GDP has contracted by 0.4% in the last three months. This was the sixth quarter of negative growth in a row. In the last 12 months the unemployment rate has risen to 7.9% from 5.8%. These values affect every single business in the UK, regardless of its size or sector, however consumers are less likely to cut back on their mobile-

phone spending than they are on other forms of entertainment (Key Note, Mobile Marketing, 2009). Other segments of the Mobile Communication sector might be affected more negatively. Purchases of new mobile phones and increasing of subscription levels have slowed down and change in these negative tendencies can not be expected until the end of the recession, which is currently predicted by 2010 by the ONS's GDP figures. However there are promising tendencies as well, such as the surprisingly quick recovery of Britain's most important trading partner, the EuroZone. As well as this, the US economy has started to expand back as well. Global growth is still projected to be weak, but most economists (such as the Irish Central Bank Governor Patrick Honohan) announced that global recession has reached bottom (Reuters). Mobile communication is one of the most technologically innovative industries in the world. 3G - the generic term for the next generation of mobile wireless communication networks, often referred to as universal mobile telecommunications system (UMTS) - now has widespread coverage among all the major networks. (Orange.co.uk) Orange's 3G network is claimed to cover 93% of the UK's population in order supply the demand of 21st century's consumers. At the same time that 3G was first introduced commercially, a new generation of mobile devices appeared as well. After the heavy and slow smartphones of the early 2000's, in 2007 Apple released its iPhone with its 3.5 display and impressive touch screen technology. Many new products have followed the iPhone; some of them (such as the HTC Hero and Palm Pre) could even take the user experience speed, interface - to the next level. As new competitors enter the market, these products are getting more affordable even for middle class households. All of these devices have a GPS chip and connection to mobile broadband. Each mentioned brand is running a different OS and two of them (Palm, HTC) are open-source software. There is a great selection of applications for these devices and most applications generate network traffic as well, causing a massive growth in revenues and importance for the non-voice services. As a Key Note analysis (Key Note, Mobile Marketing, 2009) highlights, Proposals outlined in new mobile legislation proposed by the European Parliament in autumn 2008 (known as the Telecom Package) seek to unify Europe's telecommunications market for the 27 EU member states. The main features of the proposed reforms include (Europa.eu, 2009a): Stronger consumer rights More consumer choice by reinforcing competition between operators Promoting investment in new communication infrastructure by freeing-up radio spectrum for wireless broadband services Strengthening the independence of national telecom watchdogs, freeing them from control by dominant operators and governments alike Better supervision of deregulated markets where EU-driven market opening has already led to competition Making communication networks more reliable and secure, especially to withstand viruses and other cyber-attacks

According to the latest publication of the European Commission on the Telecom Package (Ec.europa.eu, 2009b), an agreement on the Reform has been recently reached by the European Parliament and Council of Ministers on the 4th of November 2009. The new regulations are expected to enter into force on the 18th of December 2009; however the member countries still have until June 2011 - the deadline of transposition into national legislations. The new regulation will also establish a new organisation in order to provide the above mentioned better supervision of deregulated markets; the European Body of Telecoms Regulators.

Internal Environment Orange offers a wider variety of services from traditional text and voice technology to the latest 3G mobile TV service. Key Note's Top Markets: IT, Telecommunications & Security 2008 recognises two main ways in which the mobile telecommunications market is segmented; pricing tariff and type of traffic. In terms of pricing tariff, the subscriber base is divided into two broad sectors: pre-pay contracts and monthly contracts. Key Note's Mobile Telecommunications research (Key Note, 2007) based on Ofcom's statistics shows (labelled as Table 29) that in 2007 Orange had nearly the same number of Pre-Pay subscribers as contracted ones and 3 out of the 4 UK network operator rivals had a higher number of subscribers than Orange.

On the other hand if we take a look at both categories of traffic: voice traffic and non-voice traffic (SMS, IP, MMS, WAP and 3G Services), Orange looks more competitive than most of their rivals. While in 2007 Orange had a 23.6% share of the mobile voice services sector (Compared to Vodafone's 28%, O2's 24.1%, T-Mobiles 17.0% and 3's 7.3%), the company has the second largest share (26.1%) in the non-voice services sector after O2, and followed by Vodafone, T-Mobile and 3.

The numbers of the market shares clearly show that the British mobile telecommunications market is an oligopoly of 4 huge and a medium size (3) company. As such the British mobile companies' revenues and number of subscribers are slowly growing; Key Note described stability among the networks. (Key Note, Mobile Telecommunications, 2007) In 3 years by the end of 2012 Orange will change due to a merger with T-Mobile. On the 8th of September 2009 the leaders of T-Mobile and Orange announced that [They] are merging their UK operations to create the country's largest mobile phone operator, with 28.4 million customers, or 37% of the market, leapfrogging rivals O2 and Vodafone. (Guardian) The owners (France Telecom and Deutsche Telekom) will have a 50%-50% share in the new company. ...the deal is expected to lead to significant job losses among the combined workforce of 19,000 as the two companies rationalise their networks, axe call centre staff and close high street retail stores in pursuit of 3.5bn worth of cost savings. T-Mobile UK employs 6,400 and Orange 12,000. It should, however, lead to a reduction in mobile phone masts, as the new venture will need at least 5,000 fewer than the two companies operate today. (Guardian) The article mentioned that 3.5bn could be saved, however thousands of employees are expected to be made redundant. The owners of these companies also announced that one of them will lose its brand and merge into the other. It's not clear yet whether the name of Orange or TMobile will disappear forever from UK markets. In October 2006 Orange broadband customers experienced difficulties throughout the whole country with their connection and BBC reported (BBC, 17 October 2006) that the Company's customer service has failed for several days to help its customers and provide them with information. A few months later in March 2007 the BBC's Watchdog was discussing the topic of broadband internet connection. It published the results of a survey that showed that Orange's customers are the least satisfied with their service. As a response to the customers dissatisfaction Orange launched a new marketing campaign and also moved back its outsourced customer service from India to the UK (Cellular News, 2008). SWOT One of Orange's biggest strengths is its current market share; Orange has more than 21 percent of the subscribers on a rich and still growing market. Mobile telecommunication is a complex market, but the Company is present in almost all segments of it (e.g.: Internet, Music Store, Mobile TV). In some segments such as the fast growing non-voice mobile traffic (compared to the stagnant revenues of the classic voice and SMS services) Orange's share is only 4 percent behind the market leader O2. In recent years they have also built up a 3-3.5G network covering 93% of the UK population. In the event that the merger between Orange and T-Mobile will occur, the Company would become the market leader in the UK, with more than 34% of the market share, and could adapt to the context of the economic slowdown and save billions of pounds. Among the possible effects of the merger, there is a potential weakness as well. Based on the Guardian's sources, 1 out of 6 current Orange employees could be made redundant in the following years. The bad morale that can follow such news could negatively affect the whole Company's operation without relevant and effective HR management operations. The brand itself was harmed by the negative opinions and voices in public media in 2006 and 2007. The new marketing strategies of Orange have tried to rectify its brand, however many consumer forums are still full of Orange's customers complaints. The market share of contract (therefore more loyal) customers (21%) is significantly lower than O2's 27% and Vodafone's 28%. In a recession this could be a huge risk, because pay as you

go customers can simply just stop topping up their SIM cards or topping up significantly less than before. Regardless of these weaknesses, there are important opportunities ahead for Orange. The population of the UK is still growing, which means there are new customers entering the market year by year and ONS predicts that this tendency will not revert in the next 20 years. The rate of people above age 65 will rise by 8%, offering millions of new customers for competitive businesses. The number of households will grow as well, but their size will shrink. This change will induce a growth in this marketing segment as well. The Company's above mentioned 3G network contains risks too (Key Note, Digital Communications 2009). The costs of building the network was hoped to be covered by revenues of following years, however the Credit Crunch has cancelled these plans with slowing growth in revenues. The economical downturn itself is responsible for 2009's shrinking customer expenditure, causing smaller profit margins. Other factors are threatening the Company's success from sources outside of Britain; the new EU regulations (Telecom Package) will be trying to create a single mobile communication market in the whole European Union and Orange could find itself facing and even more competitive market than the oligopolistic British one. In the near future the biggest question that Brussels has to answer is whether the European Union will approve the merger of TMobile and Orange. In case of a disapproval the Company has to stop planning its part as a market leader Mobile Communication company and has to start finding a way out of its current position maybe by taking advantage of its strengths and opportunities. Recommendations 1. Orange should invest more in their 3G network, to improve its infrastructure and advertise the related services. Unlike the stagnant traditional mobile communication services (Voice and SMS), this segment is still growing and Orange already has the second largest market share, however it is still far away from O2, while 3 is also quickly catching up. 2. Orange should also offer special mobile TV packages for its 3G capable equipment owners (such as the Company's new iPhone users). Currently those who offer mobile TV services (e.g. O2) offer complete TV channels instead of focusing on specific shows and events. The only country in Europe where usage of mobile TV could meet the expectations is Italy (Rapid TV News, 2009). In Italy the most popular mobile TV channels are the ones offering football matches for those who couldn't be at home or go to watch it live in a pub. The British population is at least as fanatic about football as the Italian one. This service could attract the working classes, aged between 25 and 40, and would provide an incentive for them to purchase 3G capable smartphones they otherwise wouldnt have bought. 3. Orange should sign up young pop and rock bands from every part of the country, musicians without the support of a record label, but are locally influential. Orange should support them financially, sell their music in their own Music Store and advertise them using the Company's own infrastructure and services. With this step Orange could reach the young generation indirectly even before they purchase their own mobile phones and financially still rely on their parents. Orange UK is currently in a difficult situation with lot of opportunities. Its fate can easily be turned around with competent management and precise marketing operations regardless of the negative external factors.

References: BBC, Orange broadband hit by outages, 2006 (http://news.bbc.co.uk/1/hi/technology/6058154.stm), Accessed: 28/11/09 Cellular News, Orange To Recall Customer Care Functions from India to the UK, 2008 (http://www.cellular-news.com/story/31577.php) Accessed: 24/11/09 Guardian, Orange and T-Mobile to create UK's largest mobile phone company, 2009 (http://www.guardian.co.uk/business/2009/sep/08/orange-tmobile-merger), Accessed: 22/11/09 EU, European Commission, Reforming the current telecom rules (2009b) (http://ec.europa.eu/information_society/policy/ecomm/tomorrow/index_en.htm), Accessed: 25/11/09 EU, European Commission, EU telecoms reform (2009a) (http://ec.europa.eu/news/science/071113_1_en.htm), Accessed: 25/11/09Key Note, Mobile Marketing 2009 (https://www.keynote.co.uk/market-intelligence/view/product/2289/mobilemarketing/chapter/9/pest-analysis), Accessed: 26/10/09 Key Note, Mobile Telecommunications 2007 (https://www.keynote.co.uk/marketintelligence/view/product/2054/top-markets%3A-it-telecommunications-%26security/chapter/8/mobile-telecommunications ), Accessed: 23/11/09 Key Note, Digital Communications 2009 (https://www.keynote.co.uk/marketintelligence/view/product/2207/digital-communications/chapter/7/strengths-weaknessesopportunities-and-threats?highlight=orange%20pay%20as%20you%20go%20segment) Reuters, Article: Global recession reached bottom - ECB's Honohan (http://in.reuters.com/article/economicNews/idINIndia-43120320091013), Accessed: 15/10/09 ONS, Population Estimates for UK, England and Wales, Scotland and Northern Ireland, National Population Projections (http://www.statistics.gov.uk/hub/population/aging/olderpeople/index.html), Accessed: 24/11/09 ONS, International Migration (http://www.statistics.gov.uk/hub/population/migration/international-migration/index.html), Accessed: 24/11/09 ONS, Instant Figures (http://www.statistics.gov.uk/instantfigures.asp), Accessed: 27/10/09 ONS, Economy/GDP Growth (http://www.statistics.gov.uk/cci/nugget.asp?id=192), Accessed: 25/10/09 Orange UK, 3G (http://www2.orange.co.uk/servlet/Satellite? pagename=OUKPersonal&c=OUKService&cid=1096023564458&t=Service), Accessed: 29/11/09 Rapid TV News, Italy mobile TV will top 5m, 2009 (http://www.rapidtvnews.com/index.php/200911265303/italy-mobile-tv-will-top-5m.html), Accessed: 27/11/09)

CSABA SUTO
Student No: 0933890

The Future is Bright, but is it Orange?