Last Friday in Paris, the French regulator ARCEP held a press conference to announce that Iliad-Free will be the new mobile operator in France. It has taken five years for the French government to bring a fourth operator market because of strong opposition from the other incumbents, France Télécom-Orange, SFR and Bouygues. ARCEP had no other choice because Iliad-Free was the company to respond to the second RFP which was issued on 3 August 2009 (two years after the first one failed in 2007). In 2007, ARCEP reviewed Iliad-Free’s application but eventually decided not to make any choice because they were not satisfied with the company’s business case.
Allowing a fourth operator has been highly controversial and even French president Nicolas Sarkozy remarked that he was “skeptical” and “reserved” because allowing a fourth (and rather rabid competitor) could weaken the existing operators, pushing them to lay off employees. Sarkozy’s views are shared by many people in France. This shows how successful the three operators have been in misguiding the public and the government. In fact, the three operators have had strong and recurrent profits for many years, keeping the prices in France among the highest in Europe, and scuttling innovation in new services. Read ARCEP’s decision (PDF in French) to get a better idea of what could be the effects of Iliad-Free’s entry into this market. This is a daunting challenge for an independent company, a relatively small one compared to the others. The commercial launch of the services of “Free Mobile” in France is expected to take place in early 2012. In fact, Free will propose services (in beta) in several areas starting early 2010.
The French mobile market is stable and profitable
There are about 58 million SIM cards on the French market accounting for a 90.7% penetration rate. 68% of them are related to a recurrent subscription and others are prepaid. For the last couple of years, several trends have shaped the evolution of the mobile market in France. SMS has been booming, doubling from 2008 to 2009. The use of 3G technology has almost doubled. 3G is used by 11.4 million people or 1 in 5 mobile users in France and 1 million users have 3G USB keys to access mobile networks from their computers. 24% of mobile operators’ revenues come from data use, a 37% increase compared to the previous year.
Revenues from mobile telephony are stable, around €4.7 billion ($7 billion), but obviously, the growing part of these revenues comes from data. The ARPU has been stable for many years around €35 ($52) per post-paid subscriber and €14.8 ($22) from prepaid. The French communicate more over the cell phone (25 billion minutes) than over a fixed line.
What will Iliad-Free do with its mobile license?
ARCEP’s document does not reveal in detail the complete Iliad-Free mobile offering that it will be rolling out but one can already predict in which areas the company will shake up. Its competitors will probably take preemptive actions in the coming year, introducing changes to their offerings to take on Iliad-Free.
Technically, Iliad-Free’s license requires it to meet certain standards (the same imposed on the other operators) relating to coverage, services available, and quality of service (QOS).
It has to cover at least 25% of the population in the first 2 years and 80% of the population 8 years after the authorization. In 2020, Iliad-Free mentioned it expects to reach 8 million mobile subscribers (by comparison, Orange-France Télécom said it just passed 25 million subscribers in France this month). This 25% coverage will be reached by building a first set of base stations to cover 17 urban areas (Paris and suburbs and some major cities in France as Lyon, Bordeaux, Marseille, Lille, Strasbourg, Montpellier, etc.) They are built using native IP network (WCDMA – 3GPP compatible IMT 2000) on 2.1GHz frequencies. Simultaneously, especially in rural areas, Iliad-Free will use pieces of 900Mhz spectrum given back by the three other operators (by mid 2011), because they have been allowed to reuse this frequency to switch their networks from 2G to 3G. Free says its entire network will use HSPA software to bring 28 mbps data traffic (downstream). When they have covered 25% of the population, Iliad-Free will be allowed to sign a roaming agreement with an existing operator on its 2G network to extend rapidly its coverage to the entire French territory.
Low cost, prepaid and mobile data for everybody
Iliad-Free is expected to disrupt the French mobile market in the area of data services. In France, Iliad-Free has been a pioneer in resetting the price of DSL access in France and introducing the first flat fee for triple play. Especially in an inactive and highly profitable market, it aims to change the way people approach cellular phones.
It will reposition the basic price of the mobile subscription at a lower level by bringing competition and innovation requested by the users. It will also target the youth market by providing more affordable flat-rate data service, giving users the ability to download images, audio or video (or to stream video).
Iliad-Free is also expected to go after the remaining 25% of the population over 15 years of age who do not have a cell phone. This is a group comprised of 4 million people.
Another expected innovation from Iliad-Free is a phone bill that people can actually understand, for example, the absence of unnoticed rates, add ons that unexpectedly raise mobile fees, etc. For instance, all subscriptions proposed by Iliad-Free Mobile will have a Mobile Data Plan included (28 Mbps max), most of them will be unlimited, and an attractive pricing will be proposed for prepaid services allowing occasional mobile data access at low cost. Iliad-Free will introduce an entry level subscription under €20 ($30) per month with unlimited data plan and 180 minutes of talk; and a competitive price (not disclosed) for 3G USB keys and a prepaid plan for 3G USB key.
No subsidized phones to give a better control to users
One key element of Iliad-Free’s approach is to allow customers to buy a naked SIM Card which can be put in any (unlocked) phone. It is specified that Iliad-Free’s prices for both post-paid and prepaid services will not include a phone. The phone will not be subsidized by Iliad-Free through a two year contract and the total cost of the phone will be billed separately – one time or on a monthly basis.
We see two immediate effects of these actions. The price of the subscription with Iliad-Free Mobile will be lower, based on the real cost of the service; the customer will know the real cost and amortization of his phone. With a subsidized phone, the operator gets a free and hefty monthly bonus at the end of the 2-year (or so) contract, as far as it doesn’t lower the price of the subscription, even when the customer has finished reimbursing the subsidy put up by the operator, in his monthly bill. This will not happen with Iliad-Free as far as the phone will be billed separately on a specific schedule.
Another effect is that it will increase the competition between handset makers because people know the real price of the phones. The phone will be chosen by the user, not by the operator. This may continue to rejuvenate the handset market after the entrance of Apple and some other newcomers like the Android-based phones.
Fixed-mobile convergence and Wi-Fi
Iliad-Free has stated that all the multimedia services available to its fixed users (flat fee triple play services through the Free Box) will be open to its mobile subscribers. They will have a specific user interface, adapted to the mobile phone to access all these services. In fact Iliad-Free will offer a quadruple play service under a single tariff. This indicates that Iliad-Free will encourage the use of Wi-Fi in France.
All Iliad-Free Mobile subscribers will be able to access the free Wi-Fi network that Free has put in place through its DSL community. They will have a specific interface to facilitate the connection. This network is up and running in France today and free for all Iliad-Free subscribers. Getting its customers to use Wi-Fi for data access will alleviate the burden on its 3G network, while at the same time, lowering the outrageously high price of Wi-Fi service in France where many hotels and public places still charge for Wi-Fi.
SFR has the same approach with its DSL subscribers, but not yet for its mobile phone customers. France Telecom allow iPhone users to access their own Wi-Fi network only if they have a Live Box (Orange FT DSL access Box). Iliad-Free says it will put a lot of new Wi-Fi access points for its subscribers in public areas like airports, train station, hotels, restaurants etc. It will also develop partnerships with public Wi-Fi hot spot owners and networks. All Iliad-Free Mobile users will be able to use IP telephony over Wi-Fi. There are other interesting points revealed in the ARCEP document, which may have a long term impact on the mobile market in France. Iliad-Free will develop a new kind of contract for a maximum of four MVNOs, giving them more freedom to do business in specific markets. Today, MVNOs in France are only 5.2%of the mobile market. They exceed 15% in most of the other European countries.