The need to reduce costs is as pressing in France at Bouygues Telecom as anywhere, and yet the company is forging ahead with its 4G investments including its recent launch of LTE Advanced (LTE-A) and will modernise its stores.
Latest technologies improve productivity with increasing network speeds, capacity and cost-efficiencies. The company expects to get by with fewer people as its business has declined including a 26 per cent revenue reduction in the last two years and an operating loss of €19 million ($25.7 million) in the first quarter of 2014.
Consolidation breaks down
Bouygues Telecom's transformation and repositioning plan will cull 17 percent of its 9,000 workforce in order to survive, or at least hang on for a while, in what has become one of Europe's most competitive mobile communications markets. Market challenger Free has been a major price-based disruptor for the incumbent French operators. The workforce reduction was presented after meeting with unions. Talks, in recent weeks with rivals in fixed and mobile communications, including Orange and Free's parent Iliad, over a possible sale that might have saved jobs had already broken down.
The question of whether or not to allow mobile network operator consolidation remains highly contentious with competition authorities and has frustrated previous attempts to form horizontal mergers among mobile operators in particular.
Bouygues Telecom was thwarted in its attempts to merge with Vivendi's SFR. Competition authorities preferred the less controversial combination of mobile with cable TV and fixed telecoms networks. SFR was sold to Altice's Numericable, rather than to Bouygues, due to the threat of a lengthy and unfruitful competition review, despite the latter reportedly being clearly the favoured purchaser by the French government.
The show must go on
Despite needing to reduce costs and wanting to exit the market, Bouygues Telecom is still compelled to improve its competitiveness by investing in its 4G network, retailing and customer service. Similarly, various other operators in Europe and elsewhere are modernising to improve competitive positions and reduce costs.
Bouygues claims to be the first in France to offer LTE-A, boasting speeds of 220 Mbps, and it is among European front runners in deploying the new technology. The network is up and running in seven cities: Lyon, Bordeaux, Grenoble, Vanves, Issy-les-Moulineaux, Malakoff and Rosny-sous-Bois and will be available to consumers from 1st July. The service will become available in France's 16 largest cities by September.
Whereas LTE-A offers a variety of additional features, including enhancements to MIMO, interference cancellation, relays and SON, the primary focus of new deployments in on carrier aggregation. This increases capacity with most efficient use of disparate spectrum bands while doubling headline data speeds.
Elsewhere in Europe, Swiss incumbent Swisscom has just launched LTE-A on a limited basis and will extend the service in early July. The UK's EE plans to launch LTE-A services by the end of the summer, starting in central London, following a small pilot last November. KPN plans to deploy LTE on a second spectrum band next month. The company will add LTE services in the 1.8 GHz spectrum band to its existing LTE services in the 800 MHz band on 1st July, and activation of LTE-A will follow. SK Telecom in Korea and AT&T in the US have deployed the technology first and most extensively.
Staging for sale
Severe deterioration in performance at Bouygues Telecom requires dramatic action to stem the red ink; but capital investments to facilitate growth and reduce operating costs in the longer term are also worthwhile.
Bouygues Telecom benefits in several ways with LTE-A and its plans to spruce up its stores. It helps project a position of leadership for the tarnished marque that may help mitigate most severe price erosion, despite the company's intention to launch "very aggressively-priced, technology-packed offers all year round."
Increased demand at the lower cost per bit that the improved technology delivers will buoy profit margins. Modernisation will help keep the company in the game until a white knight appears who is sufficiently well blessed (by the authorities) and well enough endowed to take the company off the hands of the beleaguered Bouygues family conglomerate, or at least share its pain while fighting for the mobile operator consolidation the market is crying out for and desperately needs.
Keith Mallinson is a leading industry expert, analyst and consultant. Solving business problems in wireless and mobile communications, he founded consulting firm WiseHarbor in 2007. Find WiseHarbor on Twitter @WiseHarbor.