Heat is on for France Telecom in emerging hot spots

What began last weekend as a France Telecom extended brainstorming session with journalists in Tunisia quickly turned into a quasi official visit for Stéphane Richard. Between briefings on his strategy to adapt the company to the changing world of telecoms, the France Telecom chairman rushed to meetings with the Tunisian finance minister, the industry minister, the prime minister and the country’s anti-corruption commission head.

For Mr Richard, these meetings were no picnic. After all, Tunisia is one of many Middle East and African countries France Telecom has targeted to provide it with a fresh source of revenues as growth slows in its mature domestic market under pressure from new rivals and regulators.

The company already operates in 16 Middle East and African countries including Egypt, Tunisia, Morocco, Senegal, the Ivory Coast and Jordan. It recently acquired a stake in Iraq’s third-largest mobile operator. It employs some 16,700 workers in these countries and hopes to double annual sales from these operations to €7bn by 2015.

The problem is many of these countries have now become some of the hottest spots of the Arab spring. The fact they are also some of the hot spots of Mr Richard’s international expansion strategy simply highlights once again the risks of investing in emerging countries.

Take Tunisia. Just over 12 months ago, France Telecom set up Orange Tunisie with Marwan Mabrouk, a prominent local businessman. He is married to Cyrine Ben Ali, daughter of the now deposed Tunisian president. Mr Mabrouk and his wife controlled 51 per cent of Orange Tunisie with the French owning the rest. The venture also secured Tunisia’s first 3G broadband licence. In barely a year, it has taken a 10 per cent share of the local market attracting 1m subscribers.

But Mr Mabrouk’s continuing presence in the venture is now uncertain. The Tunisian so-called confiscation committee is considering whether to allow him to keep his stake with his wife or strip him of his interests. If the latter is the case, the government is expected to take over as controlling shareholder.

For Mr Richard this does not pose a serious problem. “We will simply work with the government,” he says. However, he is more concerned by the separate anti-corruption commission’s inquiries into the way the 3G licence was granted to Orange Tunisie, even though France Telecom vehemently denies making any improper payments to secure the licence.

During his conversations with ministers, Mr Richard pledged France Telecom’s long-term commitment to Tunisia. Indeed, after his meeting with the prime minister he said Orange Tunisie would be creating a further 150 jobs. But all this diplomatic bridge-building still risks being unsettled by Tunisian elections in October. The two parties leading the polls are the opposition Progressive Democrats Party and Islamists who have already warned they intend banning alcohol and bikinis on the beach.

Given the Tunisian economy is heavily reliant on tourism any political changes could heavily damage a sector struggling to recover from the recent troubles. In turn, this would also have repercussions on France Telecom’s Tunisian operations since tourists calling home make an important contribution to profits.

Tourism has also suffered in Egypt, which is by far France Telecom’s most significant operation in developing markets. One of the first things Mr Richard did when he took over from his predecessor Didier Lombard was to patch up the heated quarrel between the French group and its Egyptian associate Naguib Sawiris. The two partners control Mobinil, Egypt’s largest mobile operator with more subscribers than Orange has in France.

The situation in Egypt is even more delicate than in Tunisia. Mr Sawiris, for example, caused a huge stir last week after posting as a “joke” an online cartoon of Mickey Mouse with a beard and Minnie in a full face veil. Islamists were outraged and have called on a boycott of Mobinil. Some stores were vandalised in Cairo. Despite Mr Sawiris’ apology, the controversy has not died down. All the more so since the Egyptian Christian businessman has also gone into politics launching a party calling for the separation of state and religion. Not surprisingly, France Telecom executives are feeling a little uncomfortable about Egypt these days.

And if you add to all this the crisis in Senegal, one of the most profitable emerging countries for the French company, the ongoing tensions in the Ivory Coast, the popular stirrings in Morocco and Jordan, not to mention the uncertainties in Iraq, Mr Richard’s emerging country strategy looks bold to say the least. That is perhaps one more reason why investors are still reserving judgment on France Telecom whose shares have been languishing for the past year.

Paul Betts is a senior FT correspondent based in Paris



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