France Awards Fourth Mobile Licence to Iliad, Will Launch Within Two Years

France's telecoms regulator has announced it has awarded the country's fourth mobile licence to Iliad, who will pay 240 million euro (US$346 million) for the relevant spectrum, which will be officially issued next month. French fixed-line player Iliad, which markets its "triple play" packages of fixed phone, TV, and Internet under the brand name Free, has committed to launch a full 3G mobile service within two years.

Iliad has not commented on the long-expected licence award, but has previously stated it plans to invest some 1 billion euro into building its mobile network, has committed to hosting MVNO's, and is aiming for 80% network coverage in France by 2018.

French regulator Arcep also announced it would auction off the two remaining blocks of 3G spectrum, earmarked for mobile broadband services and expected to go to existing operators, within the next six months, and plans to launch a tender for 4G frequencies before the end of 2010.

Outlook and Implications

• A Fourth Major Player in French Mobile Telecoms: The award of the fourth French 3G mobile licence to Iliad comes as little surprise to anyone, as the operator was the only bidder in the most recent tender, and the award comes following a protracted process which has dragged on for several years. Iliad now enters a market populated with three strong competitors: France Telecom's Orange and Vivendi/Vodafone's SFR, who gained their 3G licences in 2001, and Bouygues Telecom, which secured its licence in 2006. These existing operators have attempted to disrupt the issuance of the fourth licence at every step, even taking their complaint concerning the price of the licence to the European Union (EU), as they paid more than two-and-a-half times the amount for their 3G spectrum. The EU could still potentially step in to stop the award, but this is unlikely with the current European trend of encouraging competition, and the French mobile market appearing very different from three years ago. Iliad will now begin the construction of its mobile network, and it has estimated this will require some 1 billion euro in capex, however the actual cost of launching a full business proposition could be higher, particularly on terms of marketing and if the operator decides to open stores to sell its offerings. There has been some disconcert that Iliad is taking a serious risk by entering such a mature market in the current economic climate, but the operator is confident it can compete, and is committed to shaking up the French mobile market (see France: 20 November 2009: Iliad Sees No Downside to Entry Into Mobile Market, Expected to Win Licence Before Year-End).

• Arcep Finally Acts to Shake Up the French Market: Arcep has estimated mobile penetration in France is at some 93%, and although this is significantly below its European neighbours, it still represents a very mature market. However, Iliad says it is committed to lowering prices for consumers in Europe's third-largest telecom market, worth an estimated 25 billion euro, and it is thought the operator may be able to grab some 5% market share in the next five years. The regulator Arcep has said another auction will be held for the remaining two licences, and suggests staggering payments to alleviate the burden on operators, as it attempts to throw the mobile broadband market wider open. Mobile prices in France have been more or less steady since the entry of third-placed player Bouygues in 1996, and the entry of Iliad is likely to spark a price war similar to that currently brewing in the country's fixed-line triple-play sector (see France: 7 December 2009: Bouygues Set to Cut Prices as French Price War Heats Up—Report). As Arcep hints at further developments in the country's stalled fibre-optic broadband network rollout (see France; 13 November 2009: French Government to Launch National FTTX Plan Before Year-End—Report), after years of prevarication the regulator is finally moving to bring competition in French telecoms up to the level of its European neighbours.