Orange to Sever Ties With Israeli Operator, Eight Months After 'Boycott' Controversy

Partner, Israel’s second-biggest mobile company, will get 50 million euros after it agrees to stop licensing Orange brand.

Tomer Appelbaum

Partner Communications will stop using the Orange brand name in February, eight months after the CEO of French firm Orange SA sparked a storm after saying he wanted to end the relationship – a move interpreted as supporting a boycott of Israel.

At the time, Orange SA CEO Stéphane Richard – whose company owns the Orange brand – sought to diffuse the crisis by insisting it was purely a business decision. He traveled to Israel in a bid to underline that his company didn’t support the BDS movement. Nonetheless, the two companies have now agreed to part ways.

Partner, Israel’s second-biggest mobile company, will get 50 million euros ($54.3 million) in compensation for agreeing to give up the brand under which it has marketed its products and services since its formation in 1998. The company will now have to rebrand itself, an expensive and risky process.

Partner declined to comment, other than to say it is in the midst of exploring the issue of rebranding. Its shares finished 3.3% higher at 17.75 shekels ($4.55) in Tel Aviv Stock Exchange trading Sunday.

Partner, which is controlled by the Israeli-American media tycoon Haim Saban, hasn’t decided on a new brand name, but may use the 012 Smile or 012 Mobile names it uses for some of its services and which are already well known.

Richard set off the controversy last June when, in response to a question at a Cairo news conference, said he was willing to withdraw the Orange brand from Israel “tomorrow morning,” but that moving too quickly would expose his company to legal risks and possible financial penalties.

Prime Minister Benjamin Netanyahu demanded France “publicly renounce the distressing statement and action” taken by Orange. The French government, which owns 25% of Orange, later called Richard’s remarks “clumsy,” and Orange continues to operate a research and development facility in Israel.

In fact, Partner and Orange had renewed the licensing agreement for the Orange name for another 10 years only a few months before Richard’s remarks. But after the controversy erupted, the two sides agreed terms to end the agreement, giving Partner 40 million euros immediately and another 50 million euros if it ended the agreement within 12 months.

Orange CEO Stephane Richard, March 6, 2014
Bloomberg

The initial 40-million-euro payment was supposed to finance Partner’s study of the Orange brand’s worth to the company and develop alternatives, a process the company has kept secret but is expected to be completed by next month.

Partner had several more months to continue using the Orange name, but intense competition in the mobile market and skidding profits makes the 50 million euros it is due a welcome cash infusion. Partner posted a 9-million-shekel loss in the third quarter.

Dropping the Orange name will also save the Israeli company licensing fees that in 2014 alone added up to an estimated 49 million shekels, said Ori Licht, an analyst at IBI Israel Brokerage & Investments. The 90 million euros from Orange will enable Partner to fund a major rebranding program.

In any case, Licht added, in the current cellular market, price more than brand and image is the decisive factor in recruiting and retaining subscribers.