Year in review 2012: Free Mobile triggers upheaval in French mobile market

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The news: The launch of Iliad's Free Mobile in mid-January 2012 was expected to create minor disturbance to a market that had been dominated by three operators: France Telecom's Orange, Vivendi's SFR and Bouygues Telecom. Free Mobile aggressively targeted French customers with its offer of €19.99 a month for unlimited texts and calls, 3 GB of data and unlimited Wi-Fi access

However, within days, the low-cost service provider was attracting customers so fast that Free Mobile's number portability system was at the point of being overwhelmed as it looked to take on subscribers at a rate of 100,000 to 150,000 per day. By the end of January, French MVNOs were complaining of heavy customer losses--Virgin Mobile was said to have lost 9 per cent of its base, and analysts were starting to question the future viability of the MVNO market.

The chaos that Free Mobile had created within its first few weeks of operation triggered the CEO of SFR Frank Esser to publicly criticise France Telecom for signing a roaming agreement with the new entrant, allowing Free Mobile to launch low-cost services.

While France Telecom's €2 billion roaming deal with Free Mobile was seen as good business for the company, it was not insulated from Free Mobile's cut-price offers and confirmed it had lost over 200,000 subscribers to the new operator in the first six weeks. By March, Free Mobile had signed up around 2.2 million customers, according to Bouygues Telecom CEO Olivier Roussat.

The market turmoil Free Mobile caused prompted the French telecoms regulator Arcep to speculate in March that mobile operators could cut their workforce by as many as 10,000.

By late summer the real impact on the established players became evident. Orange had launched low-cost services to rival Free Mobile, but expected its ARPU to slump by 10 per cent, while Bouygues Telecom reported that its profits for the first six months of 2012 had plummeted nearly 60 per cent compared to last year. During September, Free Mobile announced it had captured 5.4 per cent of the French Market and was looking to achieve a significantly higher level.

As the year moved to a close, Iliad was reported to be in merger talks with struggling SFR, while Bouygues Telecom decided to sue Free Mobile in the Paris courts for €98 million claiming defamation and unfair competition.

Why it was significant: The French mobile market was seen as complacent and over-priced by industry observers, prompting Free Mobile's aggressive and market-savvy owner Xavier Niel to seize the opportunity to dramatically reshape customers' expectations. "Up until now you have been cash cows," Niel said during the company's launch announcement. "Now you can either call your current operator and ask for the same price or join us."

Niel's disruptive approach has been traumatic for the established players and their MVNOs, with the competitive landscape irrevocably changed. The three established operators will need to reinvent their business models and drive down capital and operating expenditures through network or procurement sharing, squeezing infrastructure suppliers and cutting headcount.

Looking back, Vodafone's decision to sell its 44 per cent stake in SFR prior to the launch of Free Mobile was near-perfect timing.

Poland