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Orange Joins Phone Industry’s Big Infrastructure Sell-Off

Angelina Rascouet

(Bloomberg) -- Orange SA will seek to extract greater value from its telecom infrastructure, joining rivals in selling stakes in mobile-phone towers and fiber-optic networks.

In a first step, France’s largest phone carrier is selling 1,500 mobile towers in Spain to Cellnex Telecom SA for 260 million euros ($288 million), it said Wednesday in a statement unveiling a five-year strategic plan.

Orange will set up separate companies to house its 40,000 cellular towers and look for partners to help finance the costly roll-out of fiber networks in France and elsewhere in Europe.

Its shares fell as much as 4.8%, the biggest intraday drop in more than three years, after the company issued new forecasts for profits and dividends in the near term that were weaker than analysts had expected.

Orange Slides to Almost 3-Month Low as Investor Day Disappoints

The carrier is a relative latecomer to an industry push to hive off network infrastructure into separate businesses to boost its value and bring in new investors.

There’s big demand for those assets among funds seeking reliable investment returns. Their involvement could help Orange to cut investment costs and boost a share price that’s barely changed in half a decade, frustrating the government, which owns almost a quarter of the company.

The company’s new financial targets see capital spending starting to decline from 2022 once it’s made investments in radio-access network sharing deals in Spain and Belgium and completed the bulk of a fiber-to-the-home fixed-line deployment in France. Ecapex, Orange’s term for capital spending, is expected to grow by around 200 million euros in 2020, then stabilize in 2021 before starting to decline the following year.

Read more: Orange’s Midterm Outlook Ambition Hindered by Pressures: React

Making the most of infrastructure is key to a new target to increase Ebitdaal -- its measure for adjusted operating income -- by 2% to 3% for 2021-2023. That’s after slightly increasing Ebitdaal in 2019 and aiming for “flat positive” Ebitdaal in 2020.

The extra profit may not go to shareholders for now: the company set a minimum annual dividend of 70 euro cents until 2023 and said any increase would depend on the amount of organic cash flow.

“We believe the short-term guidance is underwhelming versus consensus expectations,” said Barclays analysts in a note. “As such we expect some profit taking after the recent strong stock performance.”

Orange stock has gained 1.5% this year through Tuesday, in line with the wider Stoxx Europe 600 telecommunications index, while independent wireless tower company Cellnex has doubled in value.

Red Line

For now, Orange’s infrastructure plans are relatively limited compared to those of rivals. While Vodafone Group Plc has set up a separate towers business for which it plans an initial public offering or stake sale, Orange is looking on a market-by-market basis to consider selling non-strategic towers, and will hold on to what it sees as the most valuable sites.

While the new tower companies in Europe seek to demonstrate infrastructure value, monetization so far is “very limited,” Jefferies analysts led by Jerry Dellis wrote in a note.

Orange will only go so far in separating assets that it still sees as key to its future. Chief Executive Officer Stephane Richard said it is a “red line” for Orange to “keep control” of the infrastructure, while conceding that its share price doesn’t reflect the value of the assets under the current structure.

U.S. carriers have been more radical than their European peers in the past decade, selling overall control of their towers to create a large, independent tower industry. Those deals sometimes led to higher costs for the carriers when the tower operators cranked up mast leasing costs.

Orange said it will share future fiber broadband deployment in Spain and Poland with other carriers and may find partners for its French fiber rollout. Richard also raised the prospect of a possible IPO for Orange’s Africa and Middle East business, as previously reported by Bloomberg News.

(Adds analyst comment in tenth paragraph, detail on fiber plans at end)

--With assistance from Kit Rees.

To contact the reporter on this story: Angelina Rascouet in Paris at arascouet1@bloomberg.net

To contact the editors responsible for this story: Rebecca Penty at rpenty@bloomberg.net, Thomas Pfeiffer, Jennifer Ryan

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