The cost of building Free Mobile's mobile network ate into Iliad's net profit in 2012, although the French fixed and mobile operator said it was still in the black and achieved an almost 50 percent increase in sales to €3.15 billion last year, with over €840 million generated by the new mobile unit.
Free Mobile's network costs cut into the profit of Xavier Niel's Iliad.
Iliad's group net profit fell by 26 percent to €186.5 million, while EBITDA grew by 10.6 percent to reach €921.4 million.
According to a Financial Times report, Iliad said it invested €950 million (30 percent of its revenue) in France last year and increased Free Mobile's network coverage to around 40 percent of the population, as defined by French regulator Arcep. Free Mobile also helped the group to gain more than 5.2 million subscribers over the year, and the mobile operator now has a market share of around 8 percent.
Free Mobile's arrival on the French mobile market in January 2012 sparked a price war that forced the incumbent operators France Telecom Orange France, Bouygues Telecom and SFR to launch rival low-cost offers--mostly under secondary brands, such as Orange's Sosh.
However, rival operators and French ministers have warned that these low-cost offers came at a heavy price as jobs also had to be cut. As a result, Iliad founder Xavier Niel has been consistently forced to defend his low-cost approach in the face of claims that he has seriously damaged the French telecoms industry. In its results statement for 2012, Iliad said it created 1,000 jobs in France during 2012.
Free Mobile's lack of network coverage has particularly irked its rivals, and the company has been stepping up efforts to meet Arcep demands of 75 percent population coverage by 2015. The start-up has been relying on a roaming deal with Orange, but the clock is ticking on this arrangement. The French antitrust authority, Autorité de la Concurrence, recently said the roaming deal should end by 2018 at the latest. By then, Free Mobile is required to cover 90 percent of the population with its own network.
"We need roaming to begin our mobile business but we are investing massively to build our own network at the same time," Iliad CFO Thomas Reynaud told Reuters.
Separately, Bouygues Telecom's run of good news is continuing. After it won permission from Arcep last week to refarm its 1800 MHz spectrum for LTE services, the fixed and mobile operator scored a victory against France Telecom in court. According to Bloomberg, the European Union Court of Justice overturned a decision that backed a proposed €9 billion government loan to France Telecom.
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