Today's comment: Free undercuts French market with LTE launch.
- Free Mobile has announced the launch of its LTE service, once again undercutting its rivals by offering 4G access for free on its monthly mobile data tariff.
- Free's larger rivals had counted on it being forced to raise its prices once it entered the LTE market – and the launch is likely to force French mobile prices down even further.
Free undercuts French market with LTE launch: Free Mobile has announced the launch of its LTE service in France, once again undercutting its rivals by offering 4G access for free on its monthly mobile data tariff. Iliad's Free has said that all its mobile monthly subscribers on its top EUR20 (USD27) tariff will gain access to LTE services at no extra charge and with no long-term contract. Free has also announced that it already has more than 700 4G base stations covering over 1,000 towns and cities, while this coverage is set to rapidly increase with several hundred new sites going live before the end of 2013.
Our take
Free has once again managed to shake up the competition by refusing to charge a premium for LTE access, thus significantly undercutting its rivals that have already launched 4G in metropolitan France. The Free Mobile Plan costs EUR20 (EUR16 for Freebox subscribers), with no monthly contract commitment, and offers a massive 20 GB of data use per month (subject to fair usage restrictions). Rival Orange offers its Origami Zen tariff at EUR20 per month, but on a minimum 12-month contract with no data allowance (500 MB per month is an extra EUR5). Bouygues offers LTE with no contract from EUR30, while SFR's cheapest 4G tariff is EUR31. Notably, neither Orange's Sosh nor SFR's RED low-cost brands offer 4G, and there are no French MVNOs yet offering consumer LTE services. Free's larger rivals had counted on it being forced to raise its prices once it entered the LTE market – and the launch is likely to force French mobile prices down even further.
Iliad's Free has shaken up the French mobile market since its launch in January 2012, when it undercut its rivals with its low-cost, SIM-only online business model. As a result, the operator has grabbed a 10% mobile subscriber market share in less than two years. The low prices have also forced its rivals to cut their own tariffs; regulator Arcep recently reported that average mobile tariff prices fell 11% in 2012 alone. Third-placed Bouygues recently saw its share drop two percentage points to 17% at the end of June 2013 from 19% at the end of 2011 (before the launch of Free), but has fared no worse than its rivals, with market leaders Orange and SFR losing four percentage points each, with their shares falling to 41% and 32% respectively. While these market shares have largely stabilised during 2013, the three established operators have still been reporting double-digit revenue losses at their French mobile units – and Free's latest salvo shows that the price war in the sector is far from over.
In terms of 3G network coverage, Iliad recently reported that it has covered 50% of the population, thus reducing its dependence on Orange, with whom it has a network-roaming deal. The recent announcement that Arcep will allow broader network-sharing deals will come as a boon to Iliad, which will look towards full network-sharing outside of densely populated areas, although fears amongst rivals of a 4G network-sharing deal with Orange now look unlikely. The network-roaming deal with Free – thought to be worth up to EUR2 billion – has significantly sweetened the loss of revenue and market share for Orange, but this deal is coming to an end, and relations between the operators are still frosty. Orange has already fired back at Free's LTE tariff announcement, saying, "We are not afraid of an offer that is backed with no network," and stating that it still plans to raise its 4G tariffs in February 2014. Orange saw its French mobile average revenue per user (ARPU) fall 12% y/y in the third quarter, and has warned that the price war is likely to continue into 2014, although it is confident it can keep ARPU declines under 10% next year.