French mobile maverick aims for quarter of Italian market

VEON

04/04/2017 14:42

* Iliad to launch in Italy in late 2017 or early 2018 
    * French company aims for 25 pct of Italian market - sources 
    * Free Mobile took 18 pct of French market in four years 
 
 (Adds quotes from sources) 
    By Mathieu Rosemain, Sophie Sassard and Agnieszka Flak  
    PARIS/LONDON/MILAN, April 4 (Reuters) - French telecoms 
company Iliad  ILD.PA  is aiming to grab a quarter of the 
Italian mobile market using the same cut-throat prices and 
straightforward contracts that conquered France, two sources 
familiar with its plan told Reuters. 
    Iliad's launch in Italy later this year or early 2018 is its 
first international foray besides a failed $15 billion bid for 
T-Mobile US and will be a significant test for the French 
company's billionaire founder and majority owner Xavier Niel. 
    "Iliad is planning to quickly grab about 10 percent of the 
market in the next two to three years through very aggressive 
offers, with the aim to eventually reach 25 percent," one of the 
sources said.  
    "I am not saying it will be easy but they have the capacity 
to do it and it will be very difficult for rivals who have very 
rigid cost structures to adapt fast enough," the source said. 
    Iliad's Free Mobile brand met with almost instant success in 
France thanks to prices anywhere from 50 percent to 80 percent 
lower than those offered by established players, companies that 
Niel accused publicly of ripping off consumers. 
    Niel reckons Italian consumers will be thirsty for change 
too, telling analysts in March that the country's mobile 
companies were the "most-hated" in Europe - a view based on an 
annual survey of customer perceptions by Exane BNP Paribas. 
    "You have everything you need to succeed. The same causes 
produce the same effects", said one of the sources. 
    The 2017 version of the Exane BNP Paribas survey showed that 
out of Europe's five biggest economies, Italians were the least 
satisfied with their mobile phone rates and their networks. 
    In France, Free Mobile won 18 percent of the market in four 
years and had 12.7 million customers by the end of 2016. Rivals 
cut prices to keep up, which has resulted in a 41 percent drop 
in overall average revenue per user (ARPU) in France over the 
past six years, according to estimates by GSMA Intelligence.  
     
    BIG SPLASH 
    Free Mobile is also planning to seduce Italians with simple, 
transparent offers with none of the hidden costs sometimes seen 
in Italy, such as pre-paid monthly contracts running for 28 days 
instead of 30, the sources said. 
    "They need to make a big splash", Exane BNP Paribas analyst 
Agathe Martin said. "Why not offer a free-of-charge contract to 
start with, why not offer the first six months for free?" 
    Free Mobile made unlimited texts and calls the new norm in 
France and Berenberg analyst Nicolas Didio said they would be 
revolutionary in Italy. 
    "I am convinced Iliad will succeed," he said. "They are very 
good at identifying gaps in the market and they'll pounce on 
rivals' weaknesses, leveraging customers frustration and 
addressing it with high-impact marketing campaigns." 
    Italian mobile operators Telecom Italia  TLIT.MI , Vodafone 
 VOD.L  and Wind Tre, which each control a third of the market, 
are getting ready for a fight. 
    Incumbent phone companies in Europe have long complained 
that EU rules prevent them from consolidating and investing in 
high-speed networks, and the prospect of Niel muscling in could 
make life harder. 
    However, Brussels proposed a reform last year which aims to 
give incumbents incentives to spend more, such as allowing them 
to invest together in exchange for relaxing rules that force 
incumbents to open up their networks.  urn:newsml:reuters.com:*:nL8N19H0H8  urn:newsml:reuters.com:*:nL8N1BJ1E1 
    With Niel now on the horizon, Italy's biggest phone company 
Telecom Italia is launching no-frills provider Kena Mobile for 
clients to pay "only for what they need" as it seeks to protect 
the premium positioning of its main TIM brand. 
    "We are ready ... counter-attacking with a second-brand 
strategy on the cost-conscious segment, while TIM is 
accelerating on convergence and quality," Telecom Italia Chief 
Executive Flavio Cattaneo has said. 
    Vodafone Chief Executive Vittorio Colao recently told 
reporters the British company took Iliad seriously and "has 
prepared well". The company declined to comment for this story. 
    "The Italian telecoms market is already among the most 
competitive in the world and we are used to the pressure on 
prices," Wind Tre CEO Maximo Ibarra said in March. 
    "We are not worried ... although we don't want to either 
underestimate nor exaggerate the impact of another competitor." 
     
    STARTING FROM SCRATCH 
    While Iliad has yet to take on a major developed market 
outside France, Niel has invested personally in telecoms firms 
in several countries, including Israel, Switzerland and Monaco - 
with varying degrees of success. 
    Golan Telecom won 10 percent of the Israeli market with its 
rock-bottom prices but regulators failed to approve a network 
sharing plan, the company teetered near bankruptcy and Niel was 
eventually forced to sell up.  urn:newsml:reuters.com:*:nL5N1ET18W 
    Niel also acquired Orange Switzerland, rebranding it Salt, 
but taking on Swisscom  SCMN.S  has not proved to be easy and 
Niel recently said Salt would be no a "Swiss Iliad". 
    Iliad's doubters say the conditions in Italy won't be as 
benign as they were in France when Free Mobile launched in 2012. 
    In France, Free Mobile's arrival wiped out nearly 50 percent 
of its rivals free cash flow (FCF), according to Raymond James 
analyst Stephane Beyazian, forcing them to slash costs to adjust 
to lower prices as they desperately sought to retain customers. 
    However, prices in France were twice as high as they are in 
Italy now so Iliad's impact might be different, said Beyazian. 
    Italy is already dominated by low-margin, pre-paid 
contracts, whereas nearly all French mobile consumers have 
monthly subscriptions. 
    Also, unlike in France where Iliad was known for its 
fixed-line services, Niel will be starting from scratch in 
Italy.  
    Iliad will only start with mobile offers at first in Italy, 
the sources familiar with the company's plan said, with 
broadband products set to come later. 
    "It's not unreasonable to expect that Iliad will get good 
market share, but you don't know how long it's going to take 
them, or what it will cost them," said David Marcus, chief 
executive at U.S.-based Evermore Global Advisors, which had a 
0.11 percent stake in Telecom Italia at the end of 2016.  
    Finally, the French company lacks a distribution network in 
a country where an anti-terrorism law requires SIM card owners 
to be identified with an ID card, creating an additional hurdle 
to getting new customers. 
    A spokeswoman for Iliad declined to comment.  
     
    SPECTRUM DEAL 
    Still, Iliad's profit margins are at their highest level 
since Free Mobile's launch, despite having invested more than 
1.2 billion euros ($1.3 billion), and the company is confident 
it can grow fast and make profits in Italy. 
    Iliad said it would spend about 1 billion euros on network 
spectrum. Half the frequencies will come from CK Hutchison 
Holdings  0001.HK  and VEON  VEON.O , which had to sell them to 
get approval for merging their Italian units 3 Italia and Wind. 
    Iliad hopes it will be able to expand quickly without 
spending much initially, as its spectrum deal with Wind and 3 
Italia means it will only pay if it gets clients, said Berenberg 
analysts.  
    The French firm is also factoring in the fact that many 
Italians have more than one SIM card, which means the average 
revenue per user data does not reflect the true size of the 
opportunities in Italy, said the second source.   
    But whatever the price, Iliad will have a hard time in Italy 
if it fails to offer a good service, some consumers say.  
    "I travel a lot with my job so good network coverage is more 
important for me than price.", said Giacomo Bianchi, a 
businessman in Milan. "Would I consider Free? I always look at 
any provider that comes in, but they would have to offer more 
than just cheaper fares to get me to switch again." 
   ($1 = 0.9314 euros) 
 
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Graphic    http://tmsnrt.rs/2d9rGTZ 
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 (Additional reporting by Gwenaelle Barzic in Paris and Julia 
Fioretti in Brussels; editing by Martinne Geller and David 
Clarke) 
 ((Mathieu.Rosemain@thomsonreuters.com; +33 1 4949 5182; Reuters 
Messaging: mathieu.rosemain.thomsonreuters.com@reuters.net; 
Twitter: https://twitter.com/mrosemain)) 
 
Keywords: ILIAD TELECOMS/ITALY (UPDATE 1, EXCLUSIVE, PIX, GR