New 3G player looks to shake-up sluggish French mobile market - Free Mobile tipped to capture 5% market share but unlikely to trigger price war

The launch of France’s fourth mobile network – Iliad’s Free Mobile – is unlikely to trigger a sharp decline in mobile tariffs, according to a new GSMA Intelligence study. The study benchmarked France against other markets in Western Europe that have recently seen mergers between operators or the launch of new entrants, and looked at the effect this has had on the Effective Price Per Minute (EPPM). GSMA Intelligence analysed data for Netherlands, Greece, Austria and Switzerland, which have all seen market consolidation in recent years, as well as Ireland and Spain, where new mobile networks have been launched. In all these markets, the indexed EPPM quarterly growth remained in the range of +/- 3 percent during the first ten months following either market consolidation or new network launches, dampening fears of a retail price war between operators (see chart).

Free Mobile was awarded a French 3G license late last year and has committed to launch its network within two years; its first commercial network launches are expected next year. As the only bidder in the auction, Iliad paid just EUR240 million for the license (considerably lower than the prices paid when France’s three existing 3G licenses were sold off eight years ago). Iliad plans to invest about EUR1 billion in the new network; GSMA Intelligence analyst Joss Gillet predicts that Free Mobile will capture about 5 percent of the French mobile market within three years of commercial launch. Iliad is positioning itself as a major multimedia player by combining mobile services with its existing ADSL- and FTTH-based offerings. It also plans to open up its new mobile network to MVNOs.

Regulators are hoping that Free Mobile will boost competition in the French mobile market, which remains one of the least competitive – and expensive - in Western Europe. The three existing networks – France Telecom’s Orange, SFR (a joint-venture between Vivendi and Vodafone) and Bouygues Telecom – have kept their market shares steady over the last three years (46 percent, 36 percent and 17 percent, respectively), amid a less than dynamic marketplace. Recent data from Ficora – the Finnish regulator – found that the average monthly mobile bill per user in France was EUR36.56, making the country the second most expensive mobile market in Western Europe (after Switzerland’s EUR38.83). The average monthly bill in Western Europe was EUR24.98.

Iliad therefore has the capacity to disrupt the French mobile market by marketing the most advanced technology using innovative pricing. It is already offering the country’s most advanced triple-play service that includes fixed-broadband speeds of 28Mb for EUR29.9 per month; Orange and SFR are offering lower speeds (18Mb and 20Mb, respectively) at the same price points. Iliad has also deployed a fibre optic network; has a partnership in place with CanalSat – France’s sole satellite TV supplier (owned by Vivendi) – and has invested in creative marketing and advertising campaigns. Its new mobile services are likely to be heavily integrated into this existing portfolio.

Free Mobile has no interest in triggering a price war in France, and will instead focus on delivering a streamlined and clearly-priced portfolio of offerings. Currently, the big competitive advantage for Free (in fixed-line) is that its strategy targets specific consumer needs and effectively promotes relevant services rather than being technology driven. Free Mobile is expected to adhere to the same principal by concentrating on multimedia services and applications, and will take its consumer segmentation to deeper levels by hosting MVNOs on its network. MVNO agreements are an effective solution for mobile operators to attract new users by targeting niche markets, but Iliad will face tough competition in France as the country is already home to 30 MVNOs (Orange hosts 10, SFR hosts 8, and Bouygues Telecom hosts 12).

The three existing operators have almost two years to prepare for Free Mobile’s arrival. Orange France is likely to be the most aggressive in protecting its market share, especially considering the importance of France Telecom’s home market to the parent group (France accounted for 44 percent of France Telecom’s revenue in Q3 2009). France Telecom is also planning to unify all its operations under the Orange brand by 2012 – ditching the France Telecom brand altogether – a process that is likely to coincide with Free Mobile’s launch campaign.

Joss Gillet, Senior Analyst, GSMA Intelligence:

France has been lagging behind in terms of mobile development and is currently the lowest penetrated mobile market in Western Europe on 92 percent. The introduction of Free Mobile next year will boost competition and speed up the adoption of latest technologies. Free Mobile can grab a substantial slice of the market if it is successful; we estimate that it can reach a 5 percent market share three years after launch. We expect that Iliad will follow a similar strategy to SoftBank in Japan, which disrupted the market by streamlining its portfolio of services to a few clear offers centred on consumer needs. Churn rates in France are likely to reach unprecedented levels, just as happened in Poland in Q3 2009 (following the introduction of MNP) as 65 percent of subscribers churning from other networks moved to Play (P4) – the 3G specialist. In contrast, TeliaSonera’s Yoigo in Spain - despite launching with a state-of-the-art WCDMA-HSPA network - had only achieved a 2.7 percent market share three years after launch. But unlike Yoigo, Free Mobile will enter the French market as a converged operator targeting consumers that are – according to Iliad – ‘upset by prices, lack of flexibility and transparency’.