January 10, 2012

Free Mobile Makes Life Les Miserables for French Mobile Operators


Here is an interesting question: can French billionaire Xavier Niel escape his rather sordid past (he made his early money in “adult entertainment” before his Iliad holding company launched what is now France’s second largest Internet service provider Free) and, like the Jean Valjean character in Victor Hugo’s classic novel Les Miserables, become a force for good in the world? If nothing else, as reported in the Financial Times (FT), he certainly represents a force for change.

Not “Free” but certainly inexpensive

What has the French in a frenzy? In summary, Niel, at a Paris event launching his new mobile service, said Free Mobile would charge €19.99 a month for a service with unlimited texts, domestic calls and data and free calls to 40 countries in Europe and North America. As FT noted, this compares with €49.40 for an almost identical offer by France Telecom’s new low-cost service, SoSh. Free also will be offering an even cheaper deal of €2 for 60 texts and 60 minutes of calls a month.

While the service packages do not include a phone, Free upped the ante with an announcement that it will offer the iPhone 4S starting January 27 as follows: 

With France’s three top mobile providers, France Telecom, Vivendi SFR and Bougues Telecom, all already facing stiff competition, falling ARPU and rising costs associated the need for accelerated network modernization being driven by the explosion smartphones, this was not welcome news.   France Telecom’s stock did not take that big a hit on the news based on what analysts say are its ability to fend off such a price war and the fact that the Free Mobile service initially will use the France Telecom network for 70 percent of its national coverage.

The always colorful Niel was quoted as saying French customers now are Free from the tyranny of the big three who view them as nothing more than “cash cows,” there was skepticism expressed as to whether his revolution was doomed to failure like the revolution in Les Miserables.  

History says that mobile oligopolies in Europe have not been kind to fourth and fifth entrants. As has been the case with discount airlines, long-term sustainability is an issue. However, with deep pockets, spectrum and an Internet backbone to build-out upon, selling Niel short could be a risky bet as well. With the €22 billion French mobile market now in play, and Free saying it only needs to get four to five percent market share to be sustainable, it is way too early to count Free out. 

How the other operators react, is not only going to be of interest to French consumers, but also is going to get watchful eyes from operators around the world. Vive la différence!

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Peter Bernstein is a technology industry veteran, having worked in multiple capacities with several of the industry's biggest and best known brands, and has served on the Advisory Boards of 15 technology startups. To read more of Peter's work, please visit his columnist page.

Edited by Rich Steeves



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