Iliad-Free, a large broadband provider in France, showed a 42 percent increase in Q1 2009 revenues compared to Q1 2008 (from €340 million to €482 million) and a net increase of 142,000 subscribers for its ADSL service (compare this number to Q1 2008 when it added 137,000 subscribers). Iliad-Free claims to have 4.34 million subscribers and a 25 percent market share. In one year, the company added 800,000 subscribers, not including the 806,000 additional subscribers it acquired from Alice, a French subsidiary of Telecom Italia, which was sold last year. Iliad started migrating Alice’s customers to its networks earlier this year.
Raising expectations of free cash flow
Iliad’s expectations for the rest of 2009 are positive, despite the economic crisis. Based on a €35.90 average revenue per user (ARPU) and €115 million revenues coming from value-added services (TV and Video over ADSL on demand) during the first quarter of 2009 (an increase of 44 percent), the group expects €300 million free cash flow for 2009, twice the amount in 2008. The cash flow estimate has significantly increased since last quarter when Iliad-Free had expected €250 million. Iliad-Free looks now well positioned to become the new mobile operator in France when the first block of the 4th mobile license will be auctioned off in July 2009. The expected price for the license is €210 million.
Increased profit due to FTTH
In the fixed broadband business, Iliad-Free expects to reach 5 million subscribers by end of 2010 (Alice not included) and to bring the Alice subsidiary to profitability. The company expects a strong balance sheet for 2009 with increased profits due to its expected FTTH roll out in Paris. Today, it depends largely on leased lines to France Telecom to feed its ADSL.
Xavier Niel, CEO of Iliad, says the gross margins on an existing ADSL customer is 50%. It will be 85% with FTTH, even with the same subscription tariffs, because Iliad-Free will not lease lines from France Telecom. Iliad-Free expects to cover 70% of Paris with FTTH service by the end of 2011. Rolling out FTTH in Paris is fairly inexpensive because it only requires stringing fiber through the sewers. No extensive digging is needed and the city has opened up the sewer system to all operators.
Still waiting for an agreement on the vertical part of the fiber roll out
The remaining part of the FTTH local loop, the vertical roll out into each building’s units (e.g. apartments), will be done at the operator’s expense by one operator per building. The operator has to share the connection with other operators to allow the apartment dweller his or her choice of access provider. ARCEP, the French telecom regulator, is now working with all operators to put in place a final agreement with respect to the sharing process of the vertical part of the local loop.
It looks like existing Iliad-Free customers in Paris are indeed willing to migrate to FTTH as long as the subscription fee will be €29.90, the same amount it charges for ADSL access. The price of the gateway, paid by the subscriber, is not yet known. Iliad-Free says it will provide FTTH coverage to 4 million households by 2012 which is the French government’s goal for the entire country.