Iliad’s bid for the US market; lessons from France

Over the past 18 months, Iliad has grown from a small fixed broadband provider, to become one of the key players in French mobile telecommunications

At the beginning of 2013, Iliad’s consumer brand Free could only boast 4m fixed broadband customers, most of whom were drawn to Free as a result of their unique Freebox product. A smart piece of Customer Premise Equipment (CPE), the Freebox aggregates different services such as Wi-Fi access, Community Wi-Fi, IP telephony, IP TV and more traditional broadband services.  

From inception, Iliad’s Free has always used disruptive, in-house technologies to underpin their business strategy, without having to rely on third parties. It therefore didn’t come as a surprise when they decided to launch their mobile services in the competitive French market, drastically disrupting the well-established mobile landscape with very cheap and simple subscription tariffs. These aggressive tariffs fostered a complete rejigging of the French mobile market, with the merger of SFR and Numericable on one side, and Bouygues Telecom in a dire situation today on the other.

The Community Wi-Fi network was undeniably one of the best assets Iliad leveraged to offer cheap data services in France, with subscribers seamlessly roaming on and off Free’s Wi-Fi network. This allowed Iliad to cut the cost of the origination and termination of calls, SMS and data traffic, as it mostly uses its MVNO network provided by Orange.

Cheap tariffs and disruptive in-house technology are part of Iliad’s DNA, and undoubtedly Xavier Niel’s group sees an opportunity in the US, where the ARPU has gone up by 17% over the past 4 years, in comparison with a drop of 6% in Europe during the same period.  US tariffs are on average 40% higher than those in Europe, meaning that should Iliad make a second bid that T-Mobile would deem adequate, it would be well positioned to capitalise on these generous tariffs to carve out its own market share.

Although T-Mobile has decided to turn down Iliad’s offer, currently Xavier Niel’s bid is the only one on the table.  T-Mobile’s CFO Braxton Carter has recently commented, however, that the first offer is never the best, indicating that he feels there might be scope for further negotiation with Iliad.

More interestingly, Braxton Carter has mentioned T-Mobile is now ready to carry voice over Wi-Fi traffic, mentioning fixed operator partners such as  Comcast in last week’s discussion of Iliad’s bid. Iliad may therefore decide to push a hybrid solution of Wi-Fi and LTE network to lure T-Mobile, thereby achieving low tariffs and undercutting its competitors.

Should Iliad succeed in entering the US market, it may be bad news for Verizon and AT&T, especially if Xavier Niel succeeds in also striking a deal for offering fixed services which again stitch mobile and fixed together.

 By Philippe Berard, Consultant at Coleago Consulting