Orange bets on Congo growth, consolidation with acquisition

Orange SA expects its Democratic Republic of Congo subsidiary, the company’s best-performing unit in Europe, the Middle East and Africa last year, to expand rapidly after it bought Millicom International Cellular SA’s operations in the country.

Rapid increases in revenue and customer numbers encouraged the Paris-based company to look beyond poor infrastructure and operating challenges and invest in growth potential, Jean-Michel Garrouteigt, managing director of Orange DRC, said in an interview. Stockholm-based Millicom announced Feb. 8 it agreed to sell its operations in the Congo to Orange for $160 million. The deal is subject to regulatory approval, which Orange expects to take as long as six months.

“Our growth has given confidence to the group,” Garrouteigt said in the capital, Kinshasa. “This deal will allow us to grow even more quickly.”

Congo has a population of about 78.5 million people and 48 million SIM cards, according to the GSM Association, a London- based industry body, which says the number of mobile-phone subscribers is growing at 16 percent a year. Alongside mining, the telecommunications industry has been a key driver of growth in the Congo since two civil wars that ended in 2003 shattered the country’s economy.

Surging Sales

Orange’s acquisition of Millicom’s operations, known as Tigo DRC, makes the company the second-largest telecommunications provider in Africa’s biggest French-speaking market, according to Garrouteigt. Last year, Orange DRC’s business posted a 42 percent increase in sales and doubled its customer base, he said.

“The DRC is an immense territory with a relatively weak level of mobile penetration and vast potential,” Garrouteigt said. Congo has 53 mobile subscriptions per 100 people, compared with 71 in sub-SaharanAfrica, according to World Bank data.

Orange’s deal will increase its users to 11 million and make the company a “strong challenger” to the market leader, Vodacom DRC, Garrouteigt said. Vodacom DRC is a subsidiary of Vodacom Group Ltd., a unit of Newbury, England-based Vodafone Plc.

Consolidation Needed

Congo currently has seven mobile phone operators, including Orange and Tigo, and competition has historically driven down prices in a country where operating costs are already high. Only 16 percent of the population have access to electricity, according to the World Bank, while African Development Bank figures show less than 10 percent of the country’s road network is paved.The operating environment in the Congo is challenging and consolidation in the market is necessary, according to Garrouteigt.

“Operators need to continue to invest a lot to improve the quality of the service, but competition has made this too difficult,” he said.

A review of the country’s 2002 telecommunications law, which is still under way, alarmed the industry last year with a series of proposed reforms, including the sub-division of existing operating rights into separate licenses for each service, that operators said would remove incentives for further investment. Operators currently have a single license to deliver all telecommunications services. Orange said it is confident these issues have now been addressed.

The purchase of Tigo DRC is the third African acquisition to be announced by Orange so far this year. In January, the company said it had signed an agreement with Bharti Airtel Ltd. to acquire its operating units in Burkina Faso and Sierra Leone.

Orange generated 5.7 billion euros ($6.4 billion) in revenue from 244 million customers in Africa and the Middle East in 2014, according to the company’s website.

 – Bloomberg