France offers fourth 3G license for €206 million
Last week as the French National Assembly debated the allocation of wireless spectrum to expand the mobile telephony market, Luc Chatel, Secretary of State for industry and consumers told legislators that the entry of a fourth cellular operator will boost the mobile market in France. The debate has been roiling the French telecom industry ever since ARCEP argued that it was better to allocate frequency to a fourth cellular operator in order to further competition and push the existing three operators — SFR, Bouygues and Orange — to innovate more. “First, this is an economic and industrial challenge,” said Chatel. “Several studies show that a fourth mobile operator in France may boost the mobile telephony market by 7%. With respect to prices, the entrance of a new operator has driven prices down in other countries. We expect this effect to be about 7% in France.”
Three blocks for €206 million each
Announced in the fall of 2007, the opening of the mobile market to a fourth operator prompted intense lobbying by the three existing operators who tried to block new entrants. The French government issued an RFP for a license in one block (price: €619 million) to which the only respondent was Free (a subsidiary of Iliad). The existing operators viewed the potential award of the fourth license to Free as a blow to their own businesses. However, Free, which already owns 25% of the DSL access market in France, wanted to pay for the license in installments over several years. The existing operators began lobbying again, threatening to file a complaint before the European Commission. The French government, unwilling to enter into a legal battle at the European Commission level, decided to cut the frequency allocation into 3 blocks, each block priced at €206 million, with one block exclusively reserved to a new entrant. Several other candidates have announced they want to enter the market, but Free is almost sure to be one of them. Free CEO, Xavier Niel, has already said he was willing to pay not more than €210 million.
Not a discounted network
Last December, Martin Bouygues, CEO of Bouygues Telecom, warned that a fourth operator would result in the loss of 10,000 to 30,000 jobs in the telecom industry. Reacting to this statement, several members of the National Assembly expressed concerns about the quality of new entrants. In reality, the frequencies allocated will not allow the new entrant to cover the whole country. Chatel says the coverage obligation will be the same as that required of the other operators, although the new entrant will be allowed to lease other mobile networks’ capacity to cover a a larger area. In response to Bouygues’s warning, Chatel also insisted that the new entrant will boost investment in the mobile networks, thereby creating, not reducing, employment. In terms of pricing and services, Xavier Niel claims he will reduce the annual cost of mobile phone service by 50%, or €1000, for a household with 3 cellular subscriptions. A study conducted by BNP Paribas estimates that in 2015, the impact of the new operator will bring down the market share of each of the three existing operators by less than 1%. This means most of the new operator’s market share will come from new customers to mobile services attracted by price and innovative services.
Next step: allocating the new 3G licenses
The allocation procedure will start in February 2009 via an RFP with a fixed price (a beauty contest and not an auction) for the three blocks. ARCEP will review all responses to the RFP. Two of the blocks are open to anyone, including existing 3G operators. One block will be reserved for non-mobile operators. The results of the RFP will be published in the summer of 2009. The allocation will be made in 2010 with commercial service starting early 2011.
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