Orange's pounds 800m plan for new services aims to 'leapfrog' rivals

Orange, the UK's newest mobile phone network, yesterday unveiled ambitious plans to double its investment programme, spending an extra pounds 400m through next year to improve signal coverage.

Hans Snook, group managing director, claimed the move, which would raise Orange's investment to pounds 800m between now and early 1999, would remove the biggest barrier to expanding British mobile phone ownership. He said research had shown 58 per cent of customers who left mobile networks did so because of weak signal strength.

Mr Snook claimed the accelerated investment programme, bringing forward spending originally scheduled for 2000 and beyond, would leapfrog expansion plans from Vodafone, Cellnet and One 2 One: "The primary factor that raises satisfaction is not price, it's coverage. We intend to set the agenda for the wire-free future."

He also unveiled plans for new services, including a high-speed data offering to allow customers to access the Internet and mobile handsets to replace telephone extensions in offices. Orange is also working with a UK university to develop a mobile phone which can send television pictures.

The UK mobile phone market has become increasingly competitive over the past year as the four operators have stepped up advertising campaigns. But subscriber growth in recent months has been more modest, particularly for market leaders Vodafone and Cellnet, as customers have left the networks. UK mobile phone ownership, at 13 per cent of the population, remains well below the 25 per cent and above in Scandinavia.

The spending will increase the number of Orange signal stations from 2,900 to 6,000, filling in gaps between buildings in urban areas and improving coverage in the countryside.

Orange said it would raise its coverage from 95 per cent of the UK population to 98 per cent. By the end of 2001 the company said it aimed to have 10,000 base stations.

The company indicated it intended to build the new sites more quickly to avoid potential conflicts with the Department of Trade and Industry, which has become concerned at their environmental impact. Orange is experimenting with base stations disguised as trees, though so far only two are operational.

Mr Snook said the investment, which would take Orange's total spending to more than pounds 1.6bn, would be financed out of the group's existing resources. However the group is negotiating with its bankers to refinance its pounds 1.2bn of borrowings at a lower interest rate, reflecting the company's improving financial performance.

So far pounds 870m of the facility has been drawn down, with pounds 330m left for future projects. The loans are about 1.5 percentage points above short- term money-market interest rates.

Mr Snook said recent rises in interest rates would not make it harder for Orange to fund its investment. "We're very well hedged into the future on interest rates and the fact that we may negotiate a larger borrowing facility doesn't mean it'll cost it more unless we draw on it."

Analysts yesterday welcomed the plans, but warned that the interest rate hikes made it harder to put a value on the group.

Orange shares, which rose 8.5p yesterday to 220.5p, have underperformed the stock market by 30 per cent since the flotation in March 1996 at 205p a share.

Jim McCafferty, from stockbrokers ABN Amro Hoare Govett, said: "The management at Orange is very credible, but the higher interest rate environment could put the company's valuation under pressure."

Orange shares were also boosted by figures from the company showing a 13 per cent surge in average annual revenue per customer to pounds 500. Its subscriber base grew by 195,000 in the first half of the year, giving it 35 per cent of the increase in the market. Last month Orange signed up its millionth customer, raising its overall market share to 13.3 per cent.

Orange yesterday revealed a 41 per cent drop in losses in the first half of the year, to pounds 74m, with turnover up 67 per cent to pounds 427m. The group repeated its forecast that it would become profitable in 1999.

New mobile services

Video phones

Internet browsing

Home shopping

On-line newspapers

On-line financial services

Narrow-band television

Virtual banking

Conference calling for up to six people at one time

Roaming phones connected to office switchboards

Link-up with high-speed digital data service (ISDN)