Orange SA (ORAN) 2016 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Orange's first-half 2016 results conference call. The call will be hosted by Stephane Richard, CEO; and Ramon Fernandez, Deputy CEO and Chief Financial and Strategy, with members of the Orange Executive Committee for the Q&A session that will start after the presentation.

Thank you, and let me hand over to Mr. Stephane Richard. Please go ahead.

Good morning, everyone. Welcome to this meeting. We are going to present you our results for the first half of this year. I will start with the main figures and a few comments on our commercial performance in all our countries. Maybe first the main figures.

In this first half of 2016 the first point to highlight is the top line of the Group. The revenue exceeded slightly EUR20 billion. It's still some slight growth, 0.3% year on year. It means that we are confirming the positive trend in our revenues that we have seen for the last three quarters.

In terms of EBITDA, we are flattish slightly, but still positive in terms of restated EBITDA. And this figure is perfectly consistent with our guidance of a restated EBITDA in 2016 which will be above 2015.

In terms of CapEx, we are still at a relatively high level of CapEx. It's a major point which explains also our strategy and which is the key of our commercial performance. So CapEx this semester will be -- has been EUR3.2 billion, which is 7.8% growth compared to the same period of last year.

And in terms of balance sheet, and thanks especially to the proceedings of the EE sale, we have a net-debt-to-EBITDA ratio under 2 at 1.95.

Let's see now a few, once again, key figures regarding our commercial performance. You can see that we have been very efficient in all our markets, especially regarding very high broadband, both in fixed and mobile. First, regarding 4G, we have nearly doubled our customer bases in one year with 22.7 million 4G customers all around the world. And I want to highlight specifically the performance of Spain and of Poland, with 2.5 more customers in 4G than last year, but still a very good trend in France with a growth of 68%.

We have also accelerated strongly in FTTH. And I just want to remind that Orange today, the operator in Europe, which is the most advanced and the most also efficient in terms of FTTH, both rollout and now commercial impact. So we have doubled once again our customer bases at 2.5 million customers, especially driven by France, of course, and Spain.

Resulting from this is also a strong growth in IPTV customer bases. We have today over 8.1 million TV customers in Europe. And this is also due to the success of fiber to the room and convergence, which is still also a very still powerful driver in our performance. We have over 9.5 million convergent customers in Europe, with still good trends in France and Poland.

A few highlights on our investments. As I mentioned earlier, we are still in a cycle with a high intensity of CapEx. It's a key point in our business and commercial also model. We want to differentiate by the quality of our offers, generally speaking, and especially based on the quality of networks, quality of customer experience. And this requires, of course, a high level of investment.

So this can be seen here, with especially the acceleration of FTTH rollout. You can see that we have over 8 million connectable homes in Spain, nearly 6 million in France and it's really now the starting of FTTH rollout in Poland. In 4G, as you can see, we have now over 82% of coverage in France and we are well ahead of the competition in France.

I just want to remind that Orange has been ranked number-one network in this country for the sixth consecutive year. So high level of CapEx and capacity to differentiate by the quality of our networks.

And at last a few quick comments on the footprint evolution. This first half of 2016 has been relatively active, with especially two rebranding operations in Belgium and in Egypt. This is also a major step in so far as the brand Orange, which is one of our major assets, is going to be -- has been introduced now in those two countries, Belgium and Egypt. And in Egypt it's 33 million customers that are today Orange customers.

We have also acquired a cable operator in Moldova. And now, thanks to this operation, we are convergent -- fully convergent in this country. This acquisition will be totally completed in the next month. We have closed the acquisition of a few of Airtel's operations in Africa, Burkina Faso and Sierra Leone and also Liberia.

We have acquired and we are in the process of integrating Tigo in DRC, playing the consolidation in this large country where we are today number two. And we have closed the EE disposal, I think in a very good timing, and also the disposal of our operation in Kenya.

I now ask Ramon to enter into more detail about those very good figures.

Thank you. Thank you, Stephane. Good morning to all. So turning to slide number 9, you can see that in the first half, Group revenues increased by EUR61 million thanks to an improving underlying trend in France and growth in Spain, Africa & Middle East and in enterprise.

In Q2, Group revenue was slightly positive, mainly driven by the strong performance of fixed services with very high broadband at plus 4.7%. France, of course, was notably impacted by the decrease of national roaming, but it's interesting to note that the underlying trend continues to improve despite very strong competition on the mobile market and we will come back on this point later.

Europe performed well, especially Spain, with plus 6.2% growth. Africa & the Middle East area reported a more moderate growth of 2.3%, driven by Ivory Coast, Mali and Egypt. And finally, enterprise grew for the second quarter in a row with plus 0.3%.

Turning to the EBITDA, in Q2 restated EBITDA was up 0.1%, despite the costs linked to the Euro 2016 sponsorship and the rebranding of Mobistar and Mobinil. Excluding these effects, underlying growth was plus 1.5%. We successfully reduced our costs by EUR49 million, mainly thanks to a decrease in labor, distribution and equipment costs. We also continued to improve our operational efficiency through the implementation of our Explore 2020 program.

This performance supports our 2016 restated EBITDA guidance. As already announced, H2 will show a better trend as it should not be impacted by exceptional elements. This performance, combined with the gain on the disposal of EE for EUR2.2 billion, led to a consolidated net income multiplied at close to 3 at EUR3.3 billion, as you can see on slide 11.

Net income Group share excluding EE increased by EUR262 million. This is mainly the result of better reported EBITDA, reflecting the improving underlying trend, and also lower taxes compared to 2015. The increase in depreciation and amortization level mainly reflects the change of perimeter following the consolidation of Jazztel and Meditel, and the impairment of Egypt is linked to the impact expected from the ongoing award of a new 4G license.

Turning to slide 12, in H1 we reduced our net debt by EUR2.1 billion to EUR24.5 billion. We received EUR4.5b in cash in January for the EE disposal. We also have 4% of the BT shares. And we pursued our selective M&A policy, extending our footprint in Burkina Faso, Liberia and DRC. Sierra Leone was closed in early July. We also continued to win forth our leadership with new spectrum, notably in France and Poland. That impacted our net debt in H1 for EUR1 billion. And we increased our CapEx to support the very high broadband strategy, as previously mentioned.

As of June 2016, our net-debt-to-restated-EBITDA ratio was at 1.95, compared to 2.01 at the end of 2015. And this leverage is fully consistent with our guidance.

Our liquidity position remains strong, with EUR13.2 billion at the end of June, including EUR7.1 billion in net cash.

Turning now to the business review, starting with France on slide 14, you see that the second quarter confirms the improvement in operational trends. First on fixed. Fixed broadband revenues, growth accelerated at 4.4% in Q2, driven by fiber growth with 1.2 million customers.

The convergent offers discount was compensated by an improvement in the retail customer mix. And the ARPU on broadband decreased slowly at 0.2% year on year. It even increased, in fact, on a sequential basis; it was EUR33.1 in Q2, it was EUR33 in Q1 2016.

Fixed wholesale revenue increased by 4.1% with growth in ADSL, bitstream and fiber co-financing, among other issues. And fixed and narrowband revenue decreased as expected by 12%, due also to the end of the positive impact of the tariff increase we had in March 2015, while the trend in the customer base erosion continues to improve.

Looking at mobile, mobile services revenue decreased by 5.2%. It was impacted by two factors. First the decrease in national roaming; and second, regulatory changes with the decrease in European roaming rates and also the end of the surcharge on special service numbers. This began in late 2015.

Despite these adverse factors, the mobile ARPU trend was in line with the first quarter, decreasing by 0.8%. It was 4.5% in Q2 2015. And this is driven by our capacity to maintain prices at a premium, even on the low-end segment, despite a very tough competitive environment.

In H1 in France, restated EBITDA was down 2.6%, negatively impacted by the first significant stepdown, as I said, in national roaming revenue. Other negative impacts, such as the exceptional employee profit sharing and the employee share plan in Q1, the increase in the so-called tax Cope and adverse weather conditions leading to a higher network maintenance costs also weighted on the restated EBITDA. If you exclude these effects, restated EBITDA was up, supported by ongoing efforts on costs. We further reduced distribution costs as well as labor costs.

Turning now to the commercial performance, let's have a look at mobile on slide 15. Despite a very competitive environment, our mobile customer base showed significant growth in Q2, with plus 153,000 net adds, supported by our market segmentation strategy and confirming the attractiveness of Orange offers, while we managed to maintain a price premium versus our competitors.

We successfully posted positive net adds, both on the Orange core brand and on Sosh, with respectively plus 39,000 on the Orange core brand and plus 114,000 on Sosh, which is with no doubt a very good performance in this environment on the French market. Convergence continued to drive the customer base growth with 50% of the consumer voice contracts on open offers at the end of Q2, which is an increase of 5 points year on year.

The quarter also showed further improvement in the contract churn rate, which is now at 12.7%. It's the lowest level since 2010. I recall that it was over 16% in 2014, so it's a very important improvement. And SIM-only offers continued to be predominant in our acquisitions. Today we have 58% of our customer base on the SIM-only offers.

Last, you also see on this slide that 46% of our contract customer base now benefits from the quality of our 4G network at the end of the second quarter. This is 18 points more compared to the previous year.

Turning to fixed. On fixed broadband, once again we had a record quarter with 93,000 broadband net adds. It is the best second quarter since 2009, fully supported by our fiber strategy, with 106,000 FTTH net adds, of which more than half are new Orange customers. All in all, the broadband customer base increased by more than 4% year on year, with the FTTH adoption rate at 20%. This is up 3 points year on year.

Thanks to the superiority of our fiber network, we were not only able to regain broadband market share, but also to improve our customer mix, increasing by 2 points the share of premium customers. And you can see that, as a result, fiber, combined with a convergence, continues to be a strong tool to conquer and upsell customers.

Let's now move to Spain, where overall revenues grew by 6.2% in Q2, confirming the return to growth achieved in the first quarter. This came as the result of better trends in both mobile and fixed broadband.

First, mobile revenues increased by close to 9% in Q2, 8.9%, driven by the 5.5% year-on-year growth in the contract base and also supported by several service upgrades initiated at the end of 2015 and in the first half of 2016.

Our 4G user base increased by 81%, it reaches now 6.4 million customers. Orange leaded the 4G Spanish market in the first quarter and we expect to maintain our leadership in the second quarter.

On fixed broadband, revenues increased by 9.4% in the second quarter, driven by a 5.1% growth in subscribers and a 12% growth in broadband ARPU, which is fueled by both fiber and TV offers.

Leveraging on our extensive fiber rollout, FTTH customers multiplied by close to 3 over 12 months, now reaching 1.2 million customers, the same figure as in France. And the TV subscribers multiplied by 2.8 over 12 months, thanks to our comprehensive and competitive offers.

With regard to convergence, Orange is the most dynamic operator in Spain, having the highest penetration of convergence in its fixed broadband base now at 83% and still growing. As a result, in the first half restated EBITDA grew by 15.4%. That is plus EUR84 million, reaching almost an EBITDA margin rate of 26% thanks to revenue evolution and to the accelerated integration synergy. So really a very good performance in Spain.

Turning to Poland on slide 18, the overall revenue trend slightly improved. It is still at minus 3.5% year on year, with a better trend in mobile and obviously ongoing pressure on fixed services. Mobile service revenues improved. They were down 1.7%. It was 2.1% in the previous quarter, driven by, in the second quarter, very strong contract net adds at plus 222,000. This is an increase of more than 30% compared to Q2 last year. And we also see that mobile equipment sales also grew strongly due to the transition from subsidies to instalments.

Competition on fixed from cable kept pressure on revenues, which were down by 8.9% year on year. And in order to address this, we pushed ahead first with our convergence strategy, with 40% of our broadband base which is now on convergent offers, and second, with our very high broadband strategy, with 20% of our base now on VDSL or FTTH. This quarter the Company posted 43,000 net adds in very high broadband. It was only 25,000 a year ago. And we are deploying also our strategy on fixed LTE, a mobile technology which replaces fixed access in the areas where our fixed broadband is not the best.

Let's now turn to Belgium and Luxembourg on slide 19, where we see that Q2 consolidated revenues decreased by 1.6%. But excluding regulation, they were positive 0.4%, driven by mobile service revenues increasing 0.9% year on year. Orange Belgium posted a solid contract net adds of plus 18,000, excluding machine-to-machine. Another key factor in Belgium is the good performance in terms of annual contract ARPU, which is improving by 3.4% this quarter. And last but not least, Orange Belgium contract churn kept improving versus Q1 in both B2B and B2C segments.

Together with the successful rebranding in May, Orange Belgium pursued its positive commercial momentum in fixed very high broadband in Q2 by reaching plus 10,500 customer base with a launch of its convergent offers.

Restated EBITDA in Belgium in H1 increased by 2% as a result of both the positive trend on the top line and sustained focus on cost optimization.

In Central European countries, we had the fifth consecutive quarter of revenue growth. It's a solid 1.5%, mainly driven by Romania, which represents close to 60% of the sub-segment and 2.3% of Group revenues. The contract base momentum in Central European countries is good. The base is increasing by close to 4% year on year, close to 8 million customers. 4G also is going up, standing at 2.4 million, with an increase of 0.8 million customers over the first half.

Following the signing in Romania of a fixed wholesale access contract with Telekom Romania and the acquisition of Sun Communications in Moldova, we are proud to be able to provide full convergent offers soon in all countries in this sub-segment. So we are now, in Europe, convergent everywhere.

Turning to Africa and Middle East on slide 21, you can see that growth slowed down in Q2 at plus 2.3%, impacted by a lower international wholesale revenue growth and by the customer identification process, which has been toughened in several countries, and this affected volume growth. However, mobile customer base was back to positive in June, with mobile services revenues up 3.4% in Q2.

On the other side, our strategy based on mobile data increase, supported by the smartphone penetration, development of services such as Orange Money or ecommerce, and also the diversification of our revenue mix with the rise of the B2B segment continued to be successful in this region. Data revenue increased 43%, while Orange Money revenue grew 51% in Q2, with 19 million customers and a monthly transaction value of EUR1 billion on Orange Money. B2B were also on the rise with 8% growth year on year.

H1 restated EBITDA was stable year on year, with this lower contribution from the growth in revenues. The cost base supported 3G and 4G deployment and also international traffic increase. It was also negatively impacted by new taxes in the region.

Last, in order to prepare for the future, we recently acquired new 4G license in Senegal and Ivory Coast. And by now we are commercially launching 4G or having 4G in nine African countries.

Last segment before turning back to Stephane for our 2016 guidance. Enterprise, on slide 22, where we have revenues growing for the second quarter in a row, with a plus 0.3% year on year after plus 2.1% in the first quarter. This is supported by a better trend in voice services, data services growth and still a good performance on IT services.

Voice revenue has improved not only thanks to the improving trend of legacy revenues, but also thanks to the strong growth of voice over IP services. Data services trend continued on their good momentum in France, and we had also a strong international performance. And IT and integration services grew 1.2%, and this was driven by security services and cloud strong growth. As a result, the H1 restated EBITDA increased by 10.4%, driven by revenue growth and ongoing efforts on costs.

Stephane?

Thank you, Ramon. So with this set of results that we see as very solid in all our markets and in all our different activities, we can confirm fully the guidance for this year that we gave beginning of this year. The first point of this guidance is about EBITDA. We want to deliver in 2016 a restated EBITDA above what we did in 2015 and we clearly reiterate and can confirm this target for this year.

In terms of balance sheet, we are under 2 and so easily confirming the level of net-debt-to-EBITDA ratio in the medium term around 2.

In terms of dividend, we clearly confirm the EUR0.60 dividend for this year and we have decided to pay a level -- interim dividends on December 7 of EUR0.20. And no change in the M&A policy that will remain very selective within a very disciplined management of our balance sheet, with a strong focus on existing footprint.

So this is what we wanted to tell you. Now I am here with the full team around me and we are available to answer your questions.

(Operator Instructions). Dimitri Kallianiotis, Redburn.

Good morning. I've just got three questions. The first one is regarding French mobile service revenue growth, which deteriorated in Q2. I just wanted to ask you what's your view for H2. Do you expect that deterioration to continue? Do you expect an improvement, I guess based on you expectation in terms of regulation and revenues from Iliad?

The second question is regarding Spain, which was a very good, very strong performance. Again there I wanted to ask you how much is driven by Orange outperforming the market and how much is driven by the market itself and if you expect any changes there, any more competition you expect, I don't know, from MasMovil or anybody else?

And my last question is regarding regulation in France. [ASEF] is launching a new consultation on fiber and is talking about introducing new regulation on your fiber-intense areas in particular, I guess to help Bouygues and Iliad who have underinvested in fiber. I just wanted to ask you, are you prepared to open your network to sign commercial agreements or will you fight against any regulation to make sure you make a decent return on fiber? Thank you.

Thank you. So regarding the first question, French mobile services revenues, I will ask Fabienne Dulac, the Executive Director for France, to give you an answer. But I just want to start by telling you that I don't see any deterioration. I see a quite amazing performance in a very competitive market regarding French mobile, generally speaking. But now Fabienne will provide you with a more extended explanation.

Yes. This first semester and quarter two was very specific because it's the first time we saw so much promotion and private sales. It's a very turbulent and competitive market. In this context the mobile ARPU is down by 1.6 Q on Q and in the Q2 basis. But I would like to say that this drop is exclusively due to decrease in European roaming and new regulatory on special numbers. If you remember, we talk about it last quarter, (inaudible).

And except this effect, ARPU is increasing thanks to our capacity to maintain our price premium and thanks to the customer value mix. It's a good performance in a market extremely turbulent and with a lot of promotion. I remember you, some promotion about zero euro in this market. I never saw that before.

Okay. But probably we will come back to the mobile service and mobile business trends later in this conference. I will ask maybe Gervais to commence the Spanish performance.

Yes. Good morning. Regarding the comparison with the competitors, we don't have yet the Q2 for competitors because they will publish after us, afterwards. But if you refer to the performance on Q1, we are clearly [ahead] in terms of revenues, even if we have observed that everybody, including our two main competitors, in terms of service upgrade on one hand, but also in terms of net adds, are also catching up. So this is also a market which is slightly better than it was.

This is what we saw, but we think that in Q2 we will be also slightly ahead of competition in terms of revenues, which should help us to win a few other basis points of market share in this market.

Regarding MasMovil, we are just now in the expectation of the final approval of the purchase of Yoigo. There are still some financial requests. We will see. We think that MasMovil will be an active competitor, but limited to certain areas in Spain regarding fixed market. And this is clearly in line with our expectations when we decided to acquire Jazztel and when we have been discussing the Jazztel acquisition with the competition authorities at a European level.

You knew that, by the way, we have sold some of the [remedies] to MasMovil. I just remind you that we sold the 700,000 fiber access. And this is in line with our expectations. We should have a fourth competitor, but not fully acting on the whole territory in Spain. But this is in line with our expectations.

Okay. Now I'll ask Pierre to maybe make a full point on regulation of fiber in France, where we are, what can we expect and what is our view and strategy over the next debate on regulation.

Thank you, Stephane. So we have, as you know, a very detailed regulation in France when it comes to FTTH, which is segmented by area, the very dense area, the less dense areas and the really not dense areas. We are also looking at a situation in which ARCEP, the regulator, has put in consultation a document on the perspectives and the situation of the broadband market in France. So they're launching a full and detailed market analysis. It goes into the retail market but also the enterprise market.

So we're going to be giving elements to ARCEP with regard to those market analyses. As you know, those analyses are imposed every third year actually by the European frame regulation. So we will contribute to those regulations.

But we will contribute with a few simple and clear ideas. The first idea we have is that the existing regulation allows completely for everyone to invest, co-invest and show their dedication to producing FTTH networks in France. It is very open. It has been organized that way.

So in the very dense areas it's an infrastructure-based area so you can invest if you want to. And if you don't want to invest, you don't invest. And if you have less market share, it's maybe because you invested less. So things are rather simple and you get what you deserve, or you do not get what you do not deserve. So that's a very simple principle. It has nothing to do with morals; but it has to do with financials and putting your money where your mouth is actually.

The second area is the less dense area. And this is based on co-funding, co-financing. Last year one of the most vocal players of the market, Iliad, was short on co-funding. They did not co-fund as they had said they would. And this year they're doing -- probably they're doing what they had announced. So this year they're trying to catch up a little bit. But last year they were just not doing what they had announced.

And with regards to SFR, as you know, they basically stopped doing anything for the last few years. And now they say, yes, we're going back to the market. We're going to invest again. So we're going to be expecting to see signs of their new dedication to FTTH, which has not been very evident in the last years.

So we're looking at that situation with a very simple approach. We have decided to invest actually in the very dense areas after Iliad Free. But we have chosen a technique which has proven to be the good technique. They chose a wrong approach. They put also their NROs in the wrong place and they're lagging behind now.

And ARCEP knows all of that and knows that the company really doing the job in FTTH is Orange. And that's also the reason why, since we're producing networks, we're gaining market shares. So this is the basic principle for us.

And the second principle is, yes, we're open to answering any questions from ARCEP. Probably there would be some movements at one point or another on the enterprise market, which is really the strong sign of dedication of ARCEP. It's the market on which they really want to focus.

But I think you've read, as we have read, statements by ARCEP's president saying that they will be no revolution in FTTH regulation in France. There will be no revolution. And I think no one really wants to go back to an asymmetrical regulation. It's not the topic of the day. And we would obviously very, very strongly oppose that with all the means we have.

Thank you, Pierre. I just want to get back briefly on the mobile segment in France, which was your first question, and just explain to you why I don't see any deterioration in this performance.

In fact, if you take the French mobile ARPU and if you consider the two main external effects, one being the European roaming and the other one being the new regulatory frame regarding special numbers, you have slightly growing ARPU. So clearly the apparent decrease is 100% due to external effects.

And the second point is that if you look at the commercial performance and the level of net adds, you will see that, in a very, very, very tough and competitive market, with a lot of promotions, we have been able not only to protect our bases, but even to grow with, especially in the second quarter, over 150,000 net adds in mobile, with a good mix between Sosh also and Orange. So that is the reason why I personally consider, in this market in France, with no consolidation as everyone knows, as particularly good for Orange.

Next question?

Nawar Cristini, JPMorgan.

Thank you very much. So my first question is on fixed service revenues in France. So the improving trends have continued and now we have firmly entered into positive territories. Could you please talk a bit about growth trajectory here, in particular how should we expect this to develop in H2?

And then my other questions are on Africa and Middle East and in particular on the identification process. So we've seen that impact in a number of countries in Q2, so a few questions here. Firstly, should we expect new countries to move to the same process and see impact in there? And secondly, how advanced is the process in the countries that are already impacted, in particular [DCR], Cameroon and Madagascar?

And lastly, how well is Orange positioned to seize this as a commercial opportunity, because I guess that the churn level and volatility increased in the market so we could see some winners and some losers from that process. Thank you very much.

All right. So if understood well, your first question is about the trends of our revenues in fixed services in France for H2 after a good H1. So I think I can say that we are relatively very confident in the trends of our business in France, especially thanks to the acceleration in FTTH and the good sales that we have in FTTH.

We have a growing ARPU, as you have certainly noticed in the first half. And we expect this momentum to keep in the next quarters, thanks to fiber, thanks also to the new box that we launched in May with a slight increase in our prices, offers and the box itself. So we are confident, once again, in still growing ARPU in the second half of this year in the fixed service area.

Now regarding the identification topic in Africa and the Middle East, maybe I'll ask Ramon to comment.

The identification process is an issue, by the way, that we have in all geographies. It's also coming in Europe and it is really looking at essentially prepaid customers. So what has happened is that, following some security concerns, and this is a global issue, some governments have engaged into imposing tougher requirements in some African countries.

The most visible one obviously is DRC. In DRC, at the end of June we have close to 4 million customers. And this process led to clean the bases, if I may say so, with around 1.4 million customers which had -- which could not be identified sufficiently safely. So we took a safe decision, which is to be absolutely crystal clear. And this has been done. It is now behind us.

And as a matter of fact, in June we engaged in positive net adds in DRC. So it is behind us. And this is really the brunt of what had to be done then in Cameroon, in Morocco, in Madagascar. The figures are not so important. And here also it is essentially something which is now behind us.

As I said also, we will have this in some European countries also. In Poland, for instance, there is a new law which has been passed, which is implemented since this month of July. And it will be fully implemented in early 2017. And in fact, in all these cases, in these African countries as well as in Europe,in Belgium also, there is a new regulation, in Romania also.

So it's a global issue. And I think you're very right to say that it can also be an opportunity for us because this rule obviously applies to all operators. It is a general factor. And in these countries, once a customer base has been cleaned, we expect, of course, the customer base to go back to growth. We expect to have a higher ARPU from existing customers. And we can also hope to get a bigger share of this customer base which is going to be rebuilt, focusing on our competitive position in all these countries.

So the first aspect is less revenues and less customers. The second part of the story can be much better.

Very clear. Thank you very much.

San Dhillon, Exane BNP Paribas.

Hi, guys. A couple of questions, if I may. Firstly on Spain. Now that the three main players have access to broadly the same football content and are fully convergent, with access to high-speed fixed networks, what do you think this means for the pricing environment in Spain going forward? Do you think operators will tend to monetize investments or go for market share?

And secondly, at your Essentials2020 Capital Market Day you guided to EUR1 billion of additional revenues by 2018 from mobile banking, Internet of Things and [whatnot]. It's been a year since the CMD. I'm curious to see if you're still bullish on these new revenue streams and what type of margins these new revenue streams could offer the Group. Thanks.

Okay. So first on Spain, Gervais?

On Spain, you're right. This is a mix between, I would say, same or comparable strengths for the three main players on the market. But we still have something which creates a dynamic today. This is the migration from DSL to fiber and the migration from DTH to IPTV on fiber. These are the two main drivers.

And there there is competition. There is competition. And there is competition not only based on the content, but based also on the deployment strategy, based on the installation strategy, based on the service strategy of each player and on some, I would say, small pricing differences or, let's say, tactical pricing differences. For me this is -- but this the way we are expecting the competition to be.

For those who [remind] what I said in the past, we are now playing against players who plays the same game. This is the big difference, by the way, between the Spanish market today and maybe the French market, to just make a comparison.

Okay. Thanks. Regarding the Essentials2020 targets in generating new businesses, as you certainly remember, there are two domains that we are working on within this plan. The first is IoT.

Regarding IoT, it's clearly one of the priorities of our B2B business in OBS. I can say, but maybe, Thierry -- he's here, sorry -- will provide you more comments on IoT.

I just mention the second one, which is the mobile financial services. Well, first, regarding what exists today, Orange Money, we have still a very strong and positive trend in the development of Orange Money, over 19 million users in Africa and the Middle East and a growth of 51% of our revenues in Q2. We expect revenues, direct revenues coming from Orange Money in Africa and the Middle East over EUR100 million this year.

And then as you certainly know, we are actively preparing the launch of the mobile bank offer in France. And thanks to the partnership with Groupama around Groupama Banque, we have now recruited an extensive team, led by the former CEO of BforBank, coming from BforBank, and who was Andre Coisne, who was also the man who started ING in France a few years ago. So I think he's one certainly of the best experienced professionals regarding online bank in our country. And we are actively preparing this for, let's say, the first semester, the first half of 2017, so perfectly on track also regarding our targets.

We will also introduce Orange Money in Romania in the next week. And we are also preparing the launch of the bank in Spain.

Maybe, Thierry, a few additional words on IoT?

A few words on IoT for sharing with you all that we are not starting from nothing. We already are managing more than 10 million objects around the globe, which is a very strong and powerful position for growing.

How will we grow? Through connectivity services. And we announced -- Stephane announced a few months ago that we are bringing LPWA technologies within the wide range of technologies already available within infrastructure, with LoRa technology, that's for infrastructure, and it's working quite well, and through the new service platform.

By service platform I mean the infrastructure which is collecting the data, which is allowing the data to speak a universal language and which is translating those data into outcomes for the customers. We have our own agnostic platform as a service, which is allowing us to grow particularly in four segments, healthcare, transport, smart cities and manufacturing business.

And last but not least, in IoT you know that we are a strong player within France. We are growing outside of France. And we were awarded in India a big -- a very -- the first big smart region project in one of the states of this region of the world. So quite on track when it comes to the digital enablers for growing this business. As Stephane stated, we are on track.

Okay. Great. Thank you guys.

Stephane Beyazian, Raymond James.

Yes. Thank you. I have three questions, if I may. The first one is, just from your comments, coming back on mobile service revenue growth in France, it seems like roaming was one of the two key factors to explain the EUR100 million revenue [loss] year on year. So I was just curious to know what sort of impact you're expecting for the third quarter from EU roaming and to what extent therefore this could delay the return to EBITDA growth therefore to the fourth quarter.

My second quarter is regarding Italy. This is a market where we are seeing one of your competitors showing some interest, one electricity company looking to build fiber. And I remember that in the past you made some positive comments on this market. So I was wondering whether your analysis of the Italian market has changed following the latest factors.

And my third question is regarding network speeds in France on 4G. Clearly the latest data from ARCEP showed you're quite strongly [slipping] in 4G. Not so much in population coverage actually, but also in speeds. And I was wondering for how much longer do you think you should be able to maintain some -- well, this gap versus your competition.

Okay, Stephane. I'll start with Italy and let Fabienne provide you some answer regarding the European roaming impact expected on the rest of the year, and also the leadership in network quality in the future.

So regarding Italy, I want first to make absolutely clear that we, today, are not working on anything regarding Italy, neither regarding Telecom Italia, where we think that today there is strictly no reason, no option and no interest for Orange to imagine any kind of role in Telecom Italia. It is clearly a Vivendi topic and issue and we are not concerned.

And on the rest of the Italian market, we have decided not to candidate to buy the potential assets that could be released if the merge in the mobile market is completed and authorized by the European Commission. So we have seen, as you certainly, that Iliad seems to be interested in buying those assets, but we are not.

And then, yes, there are other players that, once again, seem to be interested in rolling out new networks. We think that the Italian situation is clearly rather complicated, with the big incumbent, Telecom Italia, that seems to be in a difficult, let's say, position to really implement an ambitious plan of investment in FTTH that is wished very much by the authorities and maybe needed by the market. So no surprise to see maybe other players be interested in this.

But this being said, what, for instance, an electricity company is going really to do in the FTTH business, this is not very clear to us. So what I can just say, once again very clearly, is that we have no project, no agenda regarding this country.

And now, Fabienne? If you can --

Yes. Thank you. So for the first question about the roaming, we will be impacted by roaming in the future as in the past. But I would like to just highlight we guess this impact will be compensated by the volume of roaming during the tourist period this summer. And if you remember, last year we had a good result so we can get the same this year.

For the H2, and if I take more time, I would like to say we are and I am very confident in our ability and our capacity to pursue in this good performance, because I would like to say it's a really good performance in a very turbulent market.

Just one -- two points maybe. In H2, Q3 and Q4, I just would like to remember you that this is the more favorable [high-end] market because you have two periods, Christmas and maybe, we are sure, the launch of iPhone. And these two events are very favorable for high-end market and especially for Orange.

So we are confident in our capacity to preserve the value in the Q3. And another point, because I don't know if you see that, but we pursue the growth of convergence, customer based. It's a very good point for us, plus 12 points. 50% of our customer base, mobile and broadband, are in convergent offer. So it's very important for us.

For the second point, the question was about the premium result -- the premium network, sorry. It's in evidence, yes. We will pursue [our invest] because we want to maintain our leadership. And I would like to say, as Stephane, the last ARCEP study result illustrated all our strategy and the quality of our network and all [the invest] we made since a long time now. So we will pursue on this direction because we need to maintain this leadership, to acquire new customer and to enhance the loyalty customer base.

Stephane, I want to add something about -- to avoid any misunderstanding about the mobile, because I think it should -- you need some highlight. When you look at commercial performance, it was extraordinarily strong. It's up 153,000 net adds in Q2, of which 91,000 in retail. I just want to highlight that it's three times as much as Q1.

And when we break up this 91,000 customers in Q2, it's 114,000 coming from Sosh, which is playing the role of buffer as far as volume is concerned. And the Origami acquisition, there are some migration, but Origami acquisition is another brand, we're up 28,000; it's up 27% versus Q1.

So to make the long story short, you must take on top of your mind that Origami and Sosh has been defending the volume and the value. And when you look at ARPU, which is a big debate, it was just down EUR0.10 on a sequential basis. So this is very important to keep on the mind.

And I will wrap up once again what Stephane and Fabienne have said, Q2 ARPU was down 1.6, but it was due to the European roaming and regulatory effect. If you take out that, the underlying ARPU was up. This is very important. And the volume was there more than before.

Okay. Thank you.

Nicolas Cote-Colisson, HSBC.

Thank you. Good morning. Just to come back on France and regulation, I was wondering what you were thinking about the proposal to set up a structure that would, in a way, coordinate to build up in the low-dense area, the so-called (inaudible). And I was wondering if you were seeing that as a risk, addressing more competitors, or actually an opportunity to get a better system and to address more effectively these areas?

Another one, if we could have some first indications from the launch of your new box in France. Has it been a growth driver in the last few weeks?

And a very short one on Spain, if I may. You have different strategies in Spain in terms of branding between Jazztel and Orange. Some competitors have commented that the Jazztel brand is still quite disruptive and may force them to launch a second brand. So I was wondering what was your view on this. Thank you.

Thank you for your questions. We have heard about this maybe idea. I don't know if we can say project, but this idea of creating a vehicle, national vehicle around the what we call in France [reseaux d'initiative publique], meaning those little local networks that will be created and financed over PPPs.

To be honest, we think that this idea is very difficult to implement, may be impracticable in my view because you have, in fact -- you will have over 100 different networks in the country, with different local authorities. You will have regions. You will have departments. You will have, in some cases, cities. And then you will have different also legal formulas. I don't want to enter into details, but, in my view, it would be, from a legal point of view and a governance point of view, incredibly difficult and complex to try to put this profusion of networks in a single frame.

And on top of that, I don't think that the local authorities in France would accept -- that are financing those networks, would accept to be, in fact, included in a larger structure or national structure that no-one knows exactly whom and how this would be managed. So I don't see it, honestly, this idea as really serious. And that is the reason why we have no specific opinion on that.

Regarding the box, maybe Fabienne?

Yes. Thank you. So the new Orange box we launched past May is a real [setup] for us and for our customer. It allows more connectivity, a higher Internet speed and a better quality of TV, and it's very important.

We already observed two points. One, it's the impact of our new box with more migration and more migration to high-end offers, plus [3 points]. And we see another point, the box is a very good contribution to the mix [high end], but especially for the fiber increase. So it's very important for us.

Another point very important, it's the quality of this box, because this new box is confirmed by the call center activity very low, more than before. So the product we launch and we put in the hand of the customer is the good quality.

So another point maybe to conclude. This is a key asset, this new box, for fiber, but also for the premium strategy we have. I would like to remember and to recall one data. 57% of our fiber customer made the choice of a high-end offer. So we are in this trend and we pursue in this direction premium strategy.

Okay. Spain, Gervais?

Just to remind you that today we have five brands in Spain, which are the results of the history. And we manage the business with those five brands. Our strategy is to evolve to our two brands, because to seek to manage five brands is probably too much. It will take some time because those brands have their attributes, have their customers, have been -- have also their utility today.

Regarding the disruptive aspects of Jazztel, we are happy that Jazztel still is perceived as disruptive. This was part of the strength of Jazztel we have acquired. And we think that it is a part of the positioning of the brand, disruptive.

By the way, it doesn't mean jeopardizing the market. And you will see -- you have seen and you will see that the price positioning of Jazztel is in line with the overall strategy of generating value within Orange and, by the way, keeping also the Orange brand to the premium part of the market, where we will target some of the premium brands on the market.

But we think that on the Spanish market, there is for us enough space for keeping two brands for the future.

Okay. Thank you.

(Inaudible) to all of you. And once again we want to emphasize the -- we think the quality of this result in France, in Spain, in the enterprise segment also and reconfirm very clearly our full guidance for this year. Thank you.

That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.