One bid doesn't make an auction - the fourth French 3G licence

You have to go back almost 10 years to when the French government said it intended to issue four 3G wireless licences, setting the price at €4.95 billion--a mind-boggling number by any comparison. Perhaps understandably, only France Telecom (FT) and SFR applied, and were awarded their licences in late 2001.

The government then set May 2002 as a fresh deadline for the two remaining 3G licences, with the only applicant being Bouygues Telecom. This licence was issued in December 2002 for €619 million, with FT and SFR also being given this discounted price.

We now wait until 2006 when the French telecom regulator, ARCEP, said it would move ahead with auctioning the fourth licence after multiple parties had expressed an interest. The sole bidder by the deadline of July 2007 was Iliad--the bid was rejected because the company proposed paying the €619 million licence fee in instalments over several years instead of up front.

For the next couple of years FT, SFR and Bouygues Telecom protested to anyone that would listen about the tough market conditions and what damage a fourth operator would do, etc. They also lobbied the French President and filed a complaint with the EU to contest the lower price ARCEP was now offering as the opening bid.

Having set a deadline of last Thursday (29th October), ARCEP had, despite much delicate footwork from potential bidders, received only one bid--again from Iliad for the set price of €240 million. This time the bid was accepted.

Having clearly established that ARCEP should not consider making a career move into become an auctioneer, the determination of Iliad to enter the French mobile market does make for examination.

Firstly, Xavier Neils--the owner of Iliad--is a self-made entrepreneur and one of the country's richest men making his name offering adult entertainment services on France's forerunner of the internet, Minitel.

Neils then disrupted the fixed internet market by offering bundles of high speed internet, fixed-line phone and TV services for less than €30 a month--a move that has seen France become one of the lowest priced European countries for broadband services.

What observers believe Neils will now attempt is to do the same to the over-priced French mobile market--which possibly explains the loud protests from the existing providers. The 3G licence will enable Iliad to become a quadruple play operator offering low-cost packages combining high-speed internet, fixed phone, TV services and mobile phones as well.

However, Neils will need to offer something special given that Bouygues Telecom has recently launched such a package, and FT and SFR are unlikely to be far behind--and have the financial muscle to fight a war of attrition.

Regardless of how the fourth licence auction was managed, the French mobile market will undergo change--and it'll be consumers that benefit. So perhaps, more by chance, ARCEP did achieve its objective of providing a more competitive mobile marketplace.-Paul