The flotation of Orange will force the market to reflect on the true value of mobile phone shares. T...
The flotation of Orange will force the market to reflect on the true value of mobile phone shares. That reflection may be neither kind or charitable. Some babies are born with silver spoons in their mouths. This one looks to have iron manacles around its feet.
The Orange float will also be a defining event for France's economy. The corporate state has made a big bet on capturing leadership of Europe's digital economy, and the next few weeks of trading may show whether the gamble succeeds or fails. Will Orange be France Telecom's Austerlitz, or its Waterloo?
The French, with justification, have always viewed themselves as a front-rank scientific power. They have the nuclear missiles, the TGV trains and the Airbus planes that prove France is perhaps the one nation that can rival the US for the breadth and depth of its technological strength.
The rise of the digital technologies of the new economy has posed a puzzle for the French. Until recently, there has been little sign of French involvement in industries such as the internet, new media, and telecoms, notwithstanding investments in companies such as Bull. Giant new companies were emerging, and none of them were French. Even worse, a few of them were English. For the French, that hurt.
The French industrial, financial and political elite is, however, a formidable force when stirred into action. It is a slick and impressive act, a fact it has proven once again with its attack on the digital economy.
The French way is to anoint national champions who, like warrior champions anointed by medieval kings, set forth to conquer their chosen industry. Sometimes it works, sometimes is doesn't. Airbus was one, and it is close to becoming the dominant aircraft manufacturer in the world. Bull was another, and it has lost money in eight of the past 10 years, leaving little mark on the computing industry.
Enter Vivendi and France Telecom. Two more unlikely digital champions seldom stepped into the ring: an old water and rubbish collecting company, and an old national telecoms firm still majority owned by the French government. No matter.
Through a series of smart acquisitions, Jean-Marie Messier, Vivendi's chief executive, has turned Vivendi into Europe's leading new media business.
Likewise, France Telecom's chief executive, Michel Bon, has made the company potentially Europe's strongest telecoms operator. It is, naturally, the dominant telecoms operator in France. Through its Wanadoo unit, which is in the process of buying Britain's Freeserve, it is building one of the continent's leading internet service providers. And through its acquisition of Orange it has created the continent's second biggest mobile phone operator, second only to Vodafone AirTouch.
With a value of E115bn, France Telecom is worth as much as Deutsche Telekom and ranks second only to Vodafone among European phone companies. But much depends on the success of the Orange float.
The expansion of France Telecom has been a fabulously expensive exercise. It has run up debts of about E60bn.
Since the company is backed by the French Treasury (which owns 63% of the shares), Bon and his colleagues have the luxury of being able to afford to take risks. But even the French government is not a bottomless well of money.
France Telecom needs to get some of its cash back. And it needs to give Orange both the money and the currency to play with if it is to compete with Vodafone as a dominant player in its industry.
Is this a Waterloo or an Austerlitz? It's too early to say, but early indications aren't good. The likely value of Orange is far below what the company initially hoped to achieve, and prospective shareholders are understandably nervous about buying into a company that may never generate meaningful returns.
There is no question that France Telecom made a huge tactical mistake. It bought Orange from Vodafone at the top of the market, when Vodafone was forced to sell following its takeover of Mannesmann.
If Bon had waited six months, he could have collected Orange for half the price and put Vodafone in deep trouble. Now, it is likely to get only half the valuation for Orange which was originally expected.
Other mistakes have been made. In casting aside Hans Snook, Orange's brilliant though eccentric chief executive, Bon has shown that in his universe, if you aren't French, you don't count for very much. In an age of globalisation, that is a dangerous, backward looking attitude and risks destroying the culture that made Orange a successful company in the UK.
If it can't make the Orange float work, then it is hard to see the French push to secure for themselves a leading role in Europe's digital economy succeeding.
Matthew Lynn via the Bloomberg London newsroom
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