Orange's tough calls
Britain's one-time mobile upstart lost its way under French ownership. Can new management rediscover the magic?
Orange has been something of a lame duck in the UK mobile phone sector over the past few years with the likes of O2 and T-Mobile stealing much of its thunder in terms of innovation and profile.
Yet the appointment of a new management team could breathe life into the company, with the man behind the Virgin Mobile success story leading the charge.
Tom Alexander left Virgin Mobile after it was taken over by NTL last year and at that stage, expressed little interest in taking up a new challenge apart from racing his DB9 in the European GT championship. However after a year out of the spotlight, Mr Alexander has jumped at the chance to lead Orange's UK revival.
Orange has 15 million users in the UK and is hardly in disarray. Yet its current reputation pales in comparison to the company's image before it was acquired by France Telecom in 2000 for £25bn. At that stage, Orange was considered a phenomenal UK success story – and arguably the most successful brand launch of all time – with consumers flocking to sign up for its mobile services, tempted by effective advertising and its infuriatingly catchy slogan "The Future's Bright, The Future's Orange."
Yet the future wasn't perhaps as bright as France Telecom had hoped. Orange's management has watched as its rivals have caught the public's imagination and its own initiatives backfired. The decline of Orange has often been attributed to a clash of cultures with its parent France Telecom, a lumbering European telecoms giant with very different priorities to the young UK mobile upstart. The perception that France Telecom was stifling Orange's creativity proved hard to shake at a time when O2, recently freed from its incumbent parent BT, was storming ahead with its new brand identity.
While Orange maintains that its focus has been on moving more of its pre-pay users onto more lucrative long-term contracts the perception has been that the company has struggled to keep pace with its rivals. Many of its major new initiatives have backfired – 3G services proved unpopular; its "home-zone" converged fixed-mobile service failed to grab much attention and most recently its free broadband offer led to a flurry of customer service complaints. None of these innovations reignited its prospects in the way that T-Mobile's "Flext" contract triggered a wave of customer additions. It has also been criticised for its efforts in the marketing space as various campaigns have failed to engage consumers, with the exception of its cinema advertisements based around celebrities pitching ideas to a board of product-obsessed businessmen.
The UK is the arguably the most-competitive mobile market in the world and Orange's malaise has been reflected in its financial results. Last year, the UK carrier's operating profit fell an alarming 17 per cent to €1.4bn and in the first six months of 2007, operating profit fell a further 7 per cent to €712m. Whilst Orange is not alone in struggling to cope with intensely competitive market conditions and an increasing regulatory burden in areas like roaming, the performance has hardly inspired confidence. UBS, the investment bank, argued that radical action is needed after UK margins hit a nadir in 2006. However there are signs emerging that things are starting to change. In August, Olaf Swantee was appointed as head of Orange after Sanjiv Ahuja's decision to leave after four years at the helm. However the fact that Mr Swantee was appointed from outside the company – he joined from Hewlett-Packard where he was a high-level executive in charge of the IT giant's European sales and was a former head of customer services at Compaq – raised eyebrows.
Mr Swantee has immediately focused on Orange UK's problems and how to return it to its former glory. First to go was Eric Abensur, head of the company's broadband division, who departed last month and Mr Swantee has decided to bring in Mr Alexander to breathe life into the operation. Bernard Ghillebaert, the incumbent head of the UK operation who has been frank about Orange's lack of progress against its peers over recent times, has been moved to a new role in charge of Orange's sales and customer service operations across Europe. The appointment of Mr Alexander – a racing enthusiast with an entrepreneurial style – suggests France Telecom has warmed to the idea of letting its subsidiaries have more control over their own destinies.
Mr Alexander, 47, founded Virgin Mobile in 1999 with a tiny budget and backing from Sir Richard Branson. The virtual network operator – which leased capacity on T-Mobile's network to offer services – rapidly grew into a significant player with well over 4 million customers by targeting cost-conscious teenagers with irreverent advertising promotions and cheap tariffs. Mr Alexander presided over the flotation of the business in 2004 and the sale of the company to NTL – now Virgin Media – last year.
Although Orange is focused on higher-value contract customers, Mr Swantee believes the new UK head has the experience to revitalise the UK unit, pointing out that Mr Alexander has also worked for Cellnet, Telia and Ericsson. "In my opinion, the UK doesn't need fixing – it is a great business that is very solid financially. But there is a tremendous amount of work to be done. Tom knows what needs to be done and is very passionate about it," Mr Swantee said.
Mr Alexander is understood to be very excited about taking over at Orange UK, despite being his own boss for seven years at Virgin Mobile. One source said that Mr Alexander is very customer focused, which is what Orange needs right now. "Orange has to some extent lost its identity and its confidence in itself. As was the case at Virgin Mobile, Tom is very good at focusing on the consumer. He doesn't think like a bureaucrat," the source said.
It is likely that Mr Alexander will look to bring in old colleagues from Virgin Mobile with only one of 10 founding members still with the Virgin Media business. According to Mr Swantee, the new team needs to focus first on improving customer service, although statistics already suggest improvements are being made in that area. He said that the company then needs to focus on becoming more efficient, which could include shaking up its tariff plans and product range. The third priority will be to bolster its sales channels to ensure that it is competing on equal footing with its rivals.
Damien Chew, an analyst with ING, said that Mr Alexander's appointment has been welcomed by telecoms watchers given his experience establishing Virgin Mobile as a significant player. "The management team at Virgin did a fantastic job building a company from scratch into the largest virtual operator in Europe. It will be interesting to see if he can turn the UK operation around. It is certainly possible to get the company back on track within a year by focusing on the brand, the product and customer service, in the same way that the likes of O2 and T-Mobile have," he said.
Either way, the new management team at Orange has already reignited interest in one of the UK's most well-known brands and appears to have the blessing of its French parents to do what is necessary to restore confidence – both internally and externally – in the mobile operator, which could spell bad news for its rivals.
Returning to the fray
Tom Alexander, 47, has not taken the job of running Orange UK to boost his bank balance – the telecoms veteran is hardly short of a penny after founding Virgin Mobile and selling the business on to NTL for close to £1bn. That deal netted him more than £20m as well as ensuring that he will be on Sir Richard Branson's Christmas card list for ever. However, Mr Alexander was not exactly a pauper – his father built a fortune with a series of inventions, most notably the growbag. Mr Alexander left NTL over a year ago to indulge in his favourite hobby – racing vintage sports cars – and to spend more time with his young family. He also founded a consultancy in Bath in his year off. After spending seven years in charge at Virgin Mobile, it appeared unlikely that he would be rushing to work for a French telecoms giant. But he is up for the challenge of restoring Orange to its former lustre and has convinced the company's new boss that he knows what needs to be done. How his more entrepreneurial style will wash with his new employers is a key question but as long as he maintains the UK unit's impressive cash-generation, he will be given free rein. He is likely to focus on Orange's customer relations and marketing strategy. Insiders also said his creativity and determination could see Orange challenging for pole position in the fiercely competitive UK mobile market.