Market Consolidation and Merger Challenges

Hello and welcome to Toast, the BBC radio four series peeling back the layers on the companies and brands that once promised so much but somehow still ended up Tast I'm the BBC B journalist Sean Farrington, joined as ever by the entrepreneur Sam White, my partner in unpacking business backstories. Sam has no idea what's coming up. We keep her in the dark. so her reactions are as genuine as yours, her verdict at the end based on what she's just heard. And this episode we're looking at a brand that was bold, It was optimistic, it was definitely bright It was a brand that told us the future was bright. so just how did it get squeezed out? Hello Sam. Hey Hey. Are you excited to get our teeth into another brand? I am very excited. I'm always intrigued when it's a brand that has really captured our imagination because I think they stay in your mind for so long, don't they? when they make it, when a brand works whether you're using it or not, you see it everywhere The brand we're looking at today arrived in the nineteen nineties became part of everyday life in Britain. They put millions of mobile phones into the hands of people who'd never had one before Bld adverts and that line so many people will remember The future's bright, the future's orange. It's my favourite colour. Oh wow.y are Talking, of course, about orange In the future, no one will be tied down. and in the future, the skies will be clearer because the world of communications will be wire free Don't worry. The future's bright Future's orange Just listening to that, Sam. takes you right back ust remind you what a good brand it was that instantaneously you knew the answer to that question. Yeah, it just h back. Remarkable. And mobile phones were so new that Orange had to send out instructions on how to use them. and they sent them out cassette tapes. So this is the sort era that we're talking about when Orange first stepped into this scene. Mobile phones in the UK at this point pretty rare. They're big, they're chunky handsets. Ariels veryery expensive to make a call, associated a lot with city traders and sales reps. but behind the scenes any had quietly secured a license to build a different kind of mobile network, one designed not for the few But for the many at this stage, the business is called Micrel And it was owned by the Hong Kong based conglomerate. Hutchinson onene P. Within a few years though It will relaunch with a bit of a bolder new name than Microtel It was going to relaunch as Orange Should we bring in the man who came up with the idea with the name? Former marketing director, Chris Moss, Wlcome to Tast. Thank you. Why do you think Microtel needed a new name? Well, where to start, it was difficult because it was a project name. They hadn't actually launched any products. They hadn't sold anything to anyone. And so it was the project name. It's funny because I had to make a presentation to some investors. It's an introduction to The Hutchison Microtel PCN DCS eighteen hundred and I'm thinking Oh my Godd. whereere do I start? Because it's all about technology and I thought we have to simplify it somehow And I'd been given a bit of advice a few months before saying,, if you could create a brand create a fantastic color And it just started with the colour But then Serendipidi comes in all over the place and a few weeks and months later you begin to say, well What's crazy about calling it orange? Did you know at that point that actually you're going to get the buy in? No, It No, I was told to stand away, let the agencies get burnt, but I was already committed. The legal team turned round and said, I'm sorry you can't regter a cover Back in the nineties, you couldn't register a colour, you weren't allowed to I said, Okayv, I'm going to regter a fruit then And we had this debate for quite some weeks And I actually had to do some logos with an orange in the front of it just to sort of persuade them we were sort of serious about it And Han Snook, he was the chief executive of the group. Yeahah. And he said, No no, I don't w want to even see this presentation I want something with the word phone will tell in. There's vot a phone and there the cell net and there's one two one Give me something with the word finnal telling And that's when I did get my CV out and thought I made a bit of a mistake here. probably need to find another job fairly quickly But we kept pushing and actually converted him he became the biggest, biggest fan of Orange And then we had to go to Hong Kong and sell it to them as well, which was a bit more fraught, but it worked You still need to have a product that you're going to sell. Let's get ont to that bit of it all now. So on april the twenty eighth nineteen ninety four, Orange officially arrived Brand new network He was the fourth player in the market behind Vodahone Cellnet one two one as well, but from day one It was determined to do things differently. It positioned itself as the customer's champion, simpler pricing as well, per second billing. How big a deal was that? It was a big deal to persuade the finance guys internally that we needed to go to per second billing because of course, they'd worked it out as everyone else had on a network. Oh we'll just round everything up we had the big advantage of being one of two players who could actually build. Because in the old way, the votophone and Snit the phone down, it took up to sixty seconds to terminate the call. so they couldn't tell exactly when the call did finish We could because of the way our system works. So we had that advantage Why not use it? And of course, I always thought that if you went into a petrol station and they said,h, we've rounded it up to the nearest gallon, that wouldn't seem very fair. So why should you pay for it as well Orange grew rapidly floating on the London Stock Exchange in nineteen ninety six and its success caught the attention of the wider industry and a new buyer. A German company, Manersman Oange in nineteen ninety nine. And then just months later Ownership changed again because Manansman itself bought by Vodaphone in the biggest corporate deal of its time competition law actually meant that Vodaphone had to sell the orange part of the business It a Front's teelecom bought it For twenty five billion pounds Stuart Jackson worked for Orange from two thousand one through to twenty ten in various roles, including director of communications and joins us on Tast now. You joined not long after this flurry of deals, takeovers and spinoffs. So what was the company like? You had these wonderful offices in Marrione in central London and it was kind of late nineties, early two thousands, so you'd go and get your lunch at the local sandwich shop and walking past Madonna and Noel Gallagher and all sorts. It was a real sense of optimism still, you know, technology had so far reallyve been quite a complex and especially mobile phones, quite a complex iss for consumers. We were very much about making it consumer friendly and really opening up the technology to the mass market, makeake sure that everything we did was moving away from technology and talking to customers in a real human language. Is that where the cinema idea came from? Orange Wedays became a thing in itself, didnn't it two for one cinema tickets for its customers every Wednesday I mean, it's a great example of a customer obsessed company like Orange really thinking about what its customers wanted And at the time, cinemas were going through a really challenging and tricky time. So there was real benefit for the cinema industry as well. But you I still remember the five brand values of Orange that were talk to me back in two thousand one, friendly, straightforward, honest, simple, refreshing and dynamic. It was a company that had a big emotional connection for its customers, but also for its employees. Those employees mayaybe getting a chance to attend Glastonbury, the BAFs as Orange was already sponsoring those. And then a few years later in those early two thousands, Stewart, Orange finally launched three G. They weren't the first network to do it though. Do Do that sort of mean? despite all the innovations we're hearing around the brand, there were some issues around the technology. Certainly the vision that we had, I think outpaced the ability of the technology at the time and three G promised a lot and actually didn't that mass breakthrough moment that we were all expecting and hoping for. So if you think about three G four G five G, five G now on your mobile phone and you've got iPhones, you can access anything that you want on your phone, video, TV, anywhere on the internet. They were some of the things that we wanted to be able to do with three G technology generations previously, but the technology, the network, the handsets weren't there yet. And I think that's something that really reminded us as Orange, it's not about the technology, it's about what it actually does for the customer. And when it didn't live up to the promise, That was always a frustrating time Orange at this point, ten years old had achieved a hell of a lot attracting millions of customers, helping to make the mobile phone an essential part of everyday life for so many. So with this huge brand recognition It certainly did feel like the future did look bright. so why did the UK brand fade and then disappear So Sam, at this point, we're often getting a sense about the business we're talking about on Tast of being one of maybe a business failure about to go into decline. This doesn't feel like that, but there were some bumps in the road We mentioned how Orange was slow to offer three G connections And then in two thousand seven It was slow to get its hands on something else The iPhone Bal had sign this exclusive deal with O two So it'd be two years before orange customers could get that fancy new smartphone then, Linda Kennedy was Chief People offfficer at Orange. Linda, So by these sort of mid to late two thousands, what was the UK's mobile phone market looking like? Well, it was pretty overcrowded, Sean. There were five major operators working and competing in this space, which was more than any other European country where they would typically have two or three And because of the number of operators, the market was ripe for consolidation. so some kind of merger or acquisition became almost inevitable And at the same time, Linda, for all that's going on in the world of telecoms and technology the wider economy. It was the credit crunch, the financial crisis. And it was around then, wasn't it that Orange's owner, France Telecom, had mountain debts reported to be around seventy billion euros. att this point They were looking then to merge the brand So Front teelecom owned Oange, looking to merge the brand with T Mobile which was owned by Deutsche Telecom Why Did it want to do that Well, the merger would bring together the current number three number four players in the market, immediately making them number one By joining forces, they'd be able to share infrastructure, they'd be able to cut costs, but they'd also be able to create something big enough to compete against the likes of Vodaphone and O two So it wasn't really about growth in the traditional sense. it was more about staying competitive in a market that was getting tougher and tougher and getting the size and scale needed to lead the market to continue being an innovator, which I think had got a little bit lost along the way. So the merger would create the biggest mobile operator in the UK comombined customer base of over thirty million and the combined revenues would be over seven point two billion. Clearly, you're taking the business through a lot of change. I just wonder from an employeee' perspective, is that part of your responsibility to Th two businesses and the individuals working in very separate businesses working together Yes, that was actually really for about twelve to sixteen months, the sole purpose of the role And of course, that's a challenge because you're bringing together thousandousands of people who'd been competitors You're asking them to feel like one team almost overnight. So it's really important to give them clarity and focus as quickly as you can, both commercially and behaviorally I just wonder, given what we've heard about the essence of orange, was there a nervousness that that might be lost? Was there a panic that it wouldn't survive if something wasn't done? What was the mood like behind the scenes Well, I think we used it in terms of our communications as a bit of a burning platform. We sent the message that said, look, the current situation is unsustainable. Nobody wanted to be bought So a merger looked like a good way forwards. The Orange and the T mobile employees were facing into a lot of uncertainty, not really knowing if the merger was going to be better than what they had previously, but understanding that if it didn't happen, then the respective businesses probably not have survived, certainly not in the form that they were in before the merger So that merger went ahead in may twenty ten. Orange and TMobile were brought together under the banner everything everywhere, but continued to operate as distinct brands within that. Combined, it made them the UK's biggest network in terms of customer numbers A merger like that did lead to job cuts. twelve hundred of them as they streamlined and reduced duplication That wasn't the only challenge bringing the two of them together, of course. Orange and T Mobar facing rising expectations in what was a fast moving and very competitive market elsewhere. So a new boss was brought in to steady things. Olaf Swani, senior executive from within Orange became the chief executive. Olaf Welcome to Toast, Thank you for your time. Thank you. Now, the previous chief executive had said both brands had personalities. and he wanted to keep those. Did you feel the same way Yeah, Orange and TMobile both had very distinct brands or personalities if you want to call it like that. And there was never any intent to change that. They each had their own strengths. There was also something missing in both that made it harder to win, in particular in the business market, but also in consumer market which had a younger and a more digital sevy growing consumer base. And here I'm talking about reliability and trust in our mobile network Customers at that time perceived Voda phone in particular and to a lesser extent O two to have superior network credentials What are you thinking It doesn't matter how many customers you've got if the unit economics doesn't work. So what I'm curious about was did they come together because both businesses were losing money So the overall cost base of both businesses was too high for the market that they were operating in And so the assumption then is if we bring them together, we can bring the cost down, but you're assuming that you can still sell the same volume of business that you did prior to the merger coming together. and what I don't know is what the underlying metrics are in in the phone business. So is it more important that you sell more handsets? orr is it more important that you sell more minutes. That's the bit that I'm trying to Oas Two things here, I mean, the first is that a telecommunications business is a scale business. If you have, if you're number three, you still have to build a network for all your customers, whether you have one customer or whether you have millions of customers So when you can put two customer basis together on one network, you're obviously more profitable. You can use the same stores, you can use the same network Sam, you're right. I mean, it is a scale game first and foremost. point of What is more important number of smartphones or minutes In essence you want to monetize a network. It is not about selling iPhones, it's about people using your network. And hence At that time, what was really, really important was that you needed to have a very, very good network our network credentials were not good enough anymore at that time Now by late twenty twelve Everything everywhere was setting a bit of a new course. It was now known as EE. you haven't figred that out already, it was starting to become a brand in its own right. So it was signing up new customers of its own. And the selling point was better connectivity. EE had launched the UK's first four G network and any customers who wanted the benefit of four G to switch to EE to get it Orange and T mobile customers would eventually be switched over to EE contracts. So previously Orange had fallen behind in this race to get three G. Was there a bit of a sense then I with this that you wanted to learn from that mistake and get get ahead of it all somehow. Well, we had the opportunity which was Amazing to create something totally new. Our shareholders agreed to invest over one point a half billion pounds and actually leapfrock the whole industry to four G not only create a fantastic infrastructure in the UK that was better than our competitors, but also better than Germany France and other markets. We're very lucky to have so many people who've been able to tell the story right along a whole timeline of Orange's existence. Chris Moss still with us, who was the former marketing director who came up with that name Orange, the brand behind it and was leading so many of that conversations right at the start. Chris, I just wonder what you make of this moment where there clearly was a decision at the business that the new great stuff would be pushed towards EE. and at this point Orange would start to fade There's a lot of politics going on there this time So you've got France telecom and Deutsche Telecom owning these two halves coming together They could never ever agree. so Deutsche telecom was never going to agree to call their network orange and France Tlecom, they're not going to agree to call it Tamoobil. So The sort of answer was already there. As soon as they made that merger, they had to create something new, in my opinion anyway. By twenty fourteen, the minutes were running out, the signal was fading, online, orange was disappearing, its website shut down. customers quietly redirected to EE's website instead, you could still buy those orange phones in its shops, but the brand was beginning to be phased out as well Even orange Wednesdays. A big part of that brand for so many years was brought to an end in twenty fifteen brand withdrawn New connections and upgrades on orange tariffs ended twenty nineteen. customers had been fully moved over to A A Olaf, what was the crux of moving to that single brand EE It was actually in the end, a really simple decision. It was not a political decision at all between the French and the Germans. It was a decision to create a new company a new network and a new brand all under the same banner. emmployees with a badge called EE Customers with a bill and a product with a flyer with EE Everything new and around etwork leadership and the one thing that we absolutely carried into the new brand was the incredible power around creating a superior customer interface for your stores, and over the phone and increasingly digital as well. That came from Orange And that became part of the new brand It was not a political decision. It was a decision to create a new independent Fresash comp with a new brand. If I may add Orange has Th threeree hundred forty million customers worldwide across twenty six countries EE is also alive and EE has key attribute. carryed that on from Orange, which was the customer interface So Orange mobile in the UK was toast, but elsewhere. It's still very much connected. Globally, the orange mobile business is huge. And here in the UK, well, it's now working behind the scenes through Oange businessiness, Orange cyber defense and a UK hub supporting its global operations. So there are still over five hundred people here working somehow under the orange name and even the brand itself is still managed from the UK Sam What a line upp of people we've had to speak to. What do you think are the key reasons why something that was so important to so many people than wasn't Yeah, look, this is different to a lot of the businesses that we analyze. L this is more a rebrand but I find it fascinating because there's that much passion around it because it was such a good brand. That being said, what was at stake here was being able to align a very complex set of different organizations and different people behind one clear message And I think, you know whether you consider it political or strategic It makes sense to choose something different so that everybody doesn't have a view on it. This is human beings. Yeah, we polarize. And the way you talk about that, it sounds like actually there are lessons here that maybe could have been taken by other businesses we've talked about on toast. The strongest thing that you have in a business is that everybody is aligned behind a clear set of objectives. clear identity and almost because the brand was so strong and because the emotional connectivity within the people in the business was so strong It almost couldn't stay becausecause in staying it would create constant tension between the different businesses. Is that the lesson? I think the lesson is that you need everybody on the same page. and if a brand needs to be sacrificed in order to achieve that then it probably is the right decision. yeah Sam, thank you very much, Sam Wh as ever our entrepreneur. bringing us that analysis on Tast and big thank you to our guests, Chris Moss, Linda Kennedy, Stuart Jackson, and Ola Swant. That is it from us for now. We'll be back with a new series in November If you enjoyed this episode, then we've covered plenty of other household names, including Little Chef, Commodore compputers, the soft drrink, Sunny Delight. You can listen to all those and plenty more, all our previous episodes in the Slicice breread feeed on BBC Sounds. If you have any ideas for topics that would work well on toast, please do drop us a line toast at bc dot co dot uk Thank you so much for listening. Toast was presented by me, Seaan Farrington, produced by Linda Walker. Toast is a BBC Audio North production for radio four and BBC Sounds I'm Kate Lambbeble and from Understand from BBC Radio four This is rinsed Last time I was here, there was a tampon and there was a condom A sewage scandal damaging our rivers We had an enormous range of animals in the garden And that also started to disappear uncovered by ordinary folk Taking your own powerful people And they told me There's nothing wrong with the river windrush Basically go away and stop troubling us This is the story of how a centuries old battle between public good and private profit created an almighty stink. pays to clean it up. 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