ORANGE BECOMES ARMENIA’S THIRD MOBILE OPERATOR
BYLINE: Michael Lacquiere

World Markets Research Centre
Global Insight
November 6, 2009

The entry of a low-cost, third GSM operator will benefit the Armenian
market.

Orange has launched mobile operations in Armenia. Orange Armenia
began offering GSM services on 5 November 2009, having received its
15-year licence, also allowing for 3G service provision, 12 months
ago. The operator currently has coverage across 80% of the population,
including 500 towns and villages, and aims to offer nationwide 2G
and 3G coverage. Orange has invested 100 million euro ($148US.6
million) to date in its Armenian operations and has 300 employees
in the country. It enters a market in which penetration was 78% at
the end of 2008, with 2.447 million subscribers nationwide within a
population of around 3.2 million, including 1.1 million the capital,
Yerevan. Mobile TeleSystems (MTS)-owned K-Telecom holds an 81%
subscriber market share and VimpelCom-owned Armentel a 19% share.

IHS Global Insight Perspective

Significance: Orange enters Armenia pledging to become the
second-largest operator by subscriber numbers and promising the
imminent launch of the iPhone.

Implications: The presence of a third GSM operator in Armenia will
benefit the market, particularly given the currently lop-sided balance
of subscriber share.

Outlook: While entrance into the Armenian market ought to offer strong
subscriber uptake, it is unlikely to make any particularly notable
impact on France Telecom’s total group revenue.

Outlook and Implications

Two-Pronged Strategy: Orange has indicated that it will pursue a
two-pronged strategy in Armenia. It has made clear that it will focus
on offering affordable services, emphasising its plans to enter as a
low-cost player in a press release accompanying its service launch,
in which France Telecom chairman and chief executive officer Didier
Lombard mentioned that it would offer "unrivalled value". While the
operator has claimed that it will not pursue a price-dumping policy, it
has indicated that it aims to overtake Armentel in terms of subscriber
numbers to become the country’s second-largest operator (see Armenia:
22 September 2009: ). However, as well as offering competitive pricing,
Orange has also made it clear that it will focus largely on the mobile
internet market, having gained a 3G licence.

Such services are likely to be aimed at higher-end customers and,
with the operator also indicating that it will introduce Apple’s
iPhone in the coming months, it appears that revenue-generating
services will be on offer.

Third Operator to Benefit Market: IHS Global Insight considers that the
presence of a third GSM operator in Armenia will benefit the market,
particularly given the currently lop-sided balance of subscriber
share. As it has stated in its press release, France Telecom’s Orange
will bring "expertise and investment" to the country and this, combined
with the market presence of two financially strong Russian groups,
ought to filter benefits down to consumers. With room for organic
subscriber growth, plus the likelihood of multiple SIM ownership
bolstering penetration beyond triple-digit levels, several years of
uptake appear likely.

New Market Will Not Make Notable Impact on Group Revenues: France
Telecom is no stranger to foreign expansion, with Armenia becoming
the 30th country in which the "Orange" brand is marketed. At the end
of the third quarter of 2009, the group reported 128.8 million mobile
subscribers as customer uptake continued to grow (11.2 million added
in the quarter), but strong competition and the burden of regulation
led to quarterly earnings before interest, tax, depreciation and
amortisation (EBITDA) dropping 8% on the year to 4.56 billion euro
($6US.74 billion–see France: 29 October 2009: ). Performances have
been underwhelming both in its domestic and international markets,
and while Armenia ought to offer strong subscriber uptake, it is
unlikely to make any particularly notable impact on the group’s total
revenue of 12.7 billion euro.