Telecoms groups having to sell towers to invest is ‘weird’, says Orange chief

European telecoms operators are being forced to sell parts of their infrastructure to invest in areas such as the rollout of 5G because their returns in a saturated market are not high enough, the chief executive of Orange has said.

“When you see companies selling their towers [or] using financial vehicles to continue to invest in infrastructure there is something that is, maybe not wrong, but something weird going on in the market,” Christel Heydemann told the Financial Times.

Although the market is now cooling as interest rates rise, a number of European telecoms groups including Vodafone have cashed in on their mobile towers businesses in recent years to reduce large debt piles and free up funds for investment. Orange’s towers business has been split off into a separate company called Totem but is still fully owned by the French group.

“On the infrastructure side, you see more and more operators who are actually selling their infrastructure [to] infrastructure funds, who are acquiring it because they see benefit to investing in fibre because it’s a long-term investment with long-term guaranteed returns,” she added. 

Orange, one of Europe’s biggest telecoms providers, has invested heavily in building out networks in key markets including Spain and France and claims it has laid more fibre in Europe than its next five competitors combined. 

But like other telecoms groups it is in favour of consolidation, saying this will support investment. “Today in Europe, we have almost 100 telecom operators, whereas we only have three in China, three in the US and so on, so we have an environment today that does not favour investment,” Heydemann said. 

“Europe is already late on 5G rollout compared to the US or China. If you add to that the burden of investment in fibre which still needs to roll out in some countries, there’s an equation that is difficult for Europe.”

Orange is waiting on a decision from European competition authorities on whether it will be able to merge its Spanish business with competitor MasMovil, a deal that is viewed as a test case for whether the region’s telecoms industry will be allowed to consolidate. Competition commissioner Margrethe Vestager has argued that competition rather than mergers will lead to investment.

The European Commission has also launched an inquiry into demands from the telecoms industry that tech groups such as Google and Netflix contribute to investment in the networks they benefit from. 

Orange on Thursday launched a strategic plan aimed at increasing cash flow and returns to investors by 2025, now that much of the burden of investing in fibre is behind the state-backed company.

The plan focuses on getting more customers signed up to services linked to its fibre network, growing its Africa and Middle East and cybersecurity businesses and turning round its enterprise business, which has struggled as cloud computing and remote working have taken over. It will also continue to cut costs by a further €600mn by 2025 on top of the €700mn it has slashed over the past three years.

Earnings before interest, tax, depreciation and amortisation after leases rose 2.5 per cent to just below €13bn in 2022, while revenue was largely flat at the group at €43.7bn and in line with expectations.

Orange proposed a dividend of €0.70 per share for last year with the intention of raising it to €0.75 in 2024. The group’s share price rose nearly 5 per cent in early trading.