Orange SA (ORANY) Risk Factors

Mobile Financial Services, including banking, expose Orange to industry-specific risks such as money laundering, terrorist financing and non-compliance with economic sanctions programs, as well as common risks that are particularly sensitive in Mobile Financial Services, such as fraud, cyberattacks and service disruption. If they were to materialize, these risks could have a material effect on the Group's reputation and financial position.

Natural disasters, intentional damage caused by war, terrorism or social unrest, as well as other accidental events such as fires, errors or negligence during civil engineering work on infrastructure could lead to significant destruction of Orange’s facilities, resulting in both service interruptions and high repair costs. The frequency and intensity of weather events related to the ongoing climate change (e.g., floods, storms, heat waves) continue to increase, which could aggravate disasters and increase related damage. These developments increasingly occur in a context where the expectations of Orange customers and other stakeholders remain high with respect to its capacity to provide service continuity, including in the case of extreme weather events. In the medium term, rising sea levels could affect sites and facilities located near the coast more often. While the scope of coverage of related claims by insurers has decreased and could decrease further, the damage caused by major events or natural disasters could result in significant costs that may have to be borne by Orange, and could thus seriously and adversely affect its financial position and outlook.

The ADSs are quoted in U.S. dollars. Fluctuations in the exchange rate between the euro and the U.S. dollar are likely to affect the market price of the ADSs. For example, because Orange’s financial statements are reported in euro, a decline in the value of the euro against the U.S. dollar would reduce Orange’s earnings as reported in U.S. dollars. This could adversely affect the price at which the ADSs trade on the U.S. securities markets. Any dividend that Orange might pay in the future would be denominated in euro. A decline in the value of the euro against the U.S. dollar would reduce the U.S. dollar equivalent of any such dividend.

Due to the essential nature of telecommunications, compounded by the massive take-up of telework, the networks of telecommunications operators are particularly exposed to risks of service disruption linked to intentional and sometimes criminal acts. Interruptions to the services provided to customers may occur as a result of malicious acts such as infrastructure sabotage or via increasingly sophisticated cyberattacks, which are now a permanent threat for both individuals and businesses, or at the request of government or judicial authorities. Interruptions may also be unintentional. They can occur as a result of extreme weather events, human error, such as when subcontractors work on shared infrastructure, in conjunction with the failure of a critical supplier, or when new applications or software are rolled out or when they are updated. Lastly, they can occur as a result of capacity saturation resulting from the development of digital uses in economic life. Despite the business continuity and crisis management measures taken by Orange to protect its networks and resize them, the frequency of increasingly numerous cyberattacks, the implementation of all-IP technologies, the increase in the size of service platforms and the consolidation of equipment in a reduced number of locations mean that service interruptions could affect a larger number of customers and several countries at the same time in the future. Such events may disrupt activity not only of Orange customers but — more widely — of all citizens, and may even affect their health and safety. They could cause serious damage to Orange's reputation, give rise to liability claims against it and result in a reduction in traffic and revenue, thereby adversely impacting its earnings and outlook. If they were to occur at the level of one or several countries, they could also trigger crisis situations potentially affecting the security of the countries concerned.

Following concerns raised in many countries regarding the possible health risks linked to exposure to electromagnetic fields from telecommunication equipment, public authorities have in general approved binding regulations and health authorities have issued various precautions on usage. There is a consensus among expert groups and health authorities, including the World Health Organization (WHO), that no health risk has been established to date from exposure to electromagnetic fields below the limits recommended by the International Commission on Non-Ionizing Radiation Protection (ICNIRP). The first complementary scientific studies conducted on some of these frequencies used for 5G have come up with similar findings. However, Orange cannot prejudge the conclusions of future scientific research or future assessments by international organizations and scientific committees mandated to examine these issues. If an adverse health effect were to be scientifically established, it would have a significant adverse effect on Orange's business, brand image and the Group's earnings and financial position. Beyond potential adverse effects on Orange, this could significantly curb the development of the digital society. Public perception of a risk to human health or biodiversity could lead to a reduction in the number of customers and their level of use, as well as an increase in litigation, particularly against the installation of antennas for the mobile network. This could lead to difficulties in creating new sites, in a context where certain stakeholders question the usefulness of rolling out 5G networks. There could also be a tightening of regulations, resulting in a reduction in areas covered, failure to meet Orange’s coverage commitments to the authorities, deterioration in the quality of service and an increase in network rollout costs. The ubiquity of connected digital equipment may lead to inappropriate use due to overuse or exposure to inappropriate content and online harassment. Negative consequences on users could be both physical and psychological, particularly on young adults and children. If this ubiquity were perceived as a risk for the most vulnerable groups, it could undermine confidence in digital technology and act as a brake on innovation, and, for Orange, a decrease in the use of its services and a deterioration of its image. In any event, the Group could be held liable, and Orange’s revenue, earnings, quality of service and reputation could be adversely affected.

Pursuant to the provisions of the French Monetary and Financial Code, any investment by any non-French citizen, any French citizen not residing in France, any non-French entity or any French entity controlled by one of the aforementioned persons or entities that will result in the relevant investor (a) acquiring control of an entity registered in France, (b) acquiring all or part of a business line of an entity registered in France, or (c) for non-EU or non-EEA investors crossing, directly or indirectly, alone or in concert, a 25% threshold of voting rights in an entity registered in France, in each case, conducting activities in certain strategic industries, such as the industry in which the Company operates, is subject to the prior authorization of the French Ministry of Economy, which authorization may be conditioned on certain undertakings. In the context of the ongoing Covid-19 pandemic, a governmental decree, as modified, has created, until December 31, 2022, a new 10% threshold of the voting rights for the non-European investments in listed companies, in addition to the 25% abovementioned threshold. Therefore, any investor meeting the above criteria willing to acquire all or part of the Company’s business with the effect of crossing the applicable share capital thresholds set forth by the French Monetary and Financial Code will have to request this prior governmental authorization before acquiring the Company’s Shares or ADSs. Orange cannot guarantee that such investor will obtain the necessary authorization in due time. The authorization may also be granted subject to conditions that deter a potential purchaser. The existence of such conditions to an investment in the Company’s securities could have a negative impact on its ability to raise the funds necessary to its development. In addition, failure to comply with such measures could result in significant consequences for the investor (including the investment to be deemed null and void). Such measures could also delay or discourage a takeover attempt, and the Company cannot predict whether these measures will result in a lower or more volatile market price of its ADSs or Shares.

Orange believes that, in general and in the countries where it operates, it complies in all material respects with the regulations in force relating to its activities and its relations with its partners, suppliers, sub-contractors and customers, as well as with the conditions governing its operator licenses. However, it is not able to predict the decisions of supervisory or judicial authorities, which are regularly asked to rule on such issues. If Orange were to be ordered by the competent authorities of a country in which it operates to pay an indemnity or a fine, or to suspend certain of its business activities, based on a breach of applicable regulations, its financial position and earnings could be significantly adversely affected. In addition, Orange (particularly in France and Poland) is frequently involved in proceedings with its competitors and the regulatory authorities due to its pre-eminent position in certain of the markets where it operates, and the claims made against Orange can be very substantial. In the past, the Group has been fined several tens of millions of euros or even several hundreds of millions of euros for cartel practices or for abusing its dominant position. The Group is also involved in substantial commercial litigation with potentially very significant penalties. The outcome of lawsuits is inherently unpredictable. For proceedings before the European competition authorities, the maximum amount of fines provided for by law is 10% of the consolidated revenue of the offending company (or the group to which it belongs, as the case may be). Lastly, due in particular to its relationships with numerous partners, suppliers and subcontractors, Orange is exposed to a growing risk of legal action by various stakeholders from civil society alleging shortcomings on environmental, employee-related or social matters. That could be the case, for instance, if Orange were to distribute products that are found to contain rare minerals extracted under non-compliant conditions. Such actions could cause significant damage to Orange’s reputation. The main proceedings involving Orange are described in Note 10 Taxes and Note 18 Litigation to the Consolidated Financial Statements. Developments in or the outcome of some or all of these ongoing proceedings could have a material adverse effect on Orange’s earnings or financial position.