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Currency

A maverick French telecoms firm attempts Italian conquest

“CHOOSE truth. Choose Iliad,” entreats the voice-over of a television advertisement after images of President Donald Trump speechifying and footballers feigning injuries flash across the screen. That may seem pretentious for a mobile provider, but the advert is part of Iliad’s entry into Italy, which began on May 29th. The group, led by one of France’s most prominent businessmen, Xavier Niel (pictured), is credited with having shaken up the telecoms industry at home. He wants to have a similar impact in Italy.

Mr Niel started out with a porn-chat service for Minitel, a French antecedent to the internet. In 2002 he launched his Freebox, which combined cheap web access, TV and fixed-line telephony, and in 2012 started selling low-cost mobile telephony. Growth came easily for years, allowing Mr Niel to spend time on other things, such as launching Station F, the world’s largest startup incubator, in Paris, and free coding schools in Paris and Silicon Valley.

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In France, Iliad, the third-largest mobile operator, is looking rather mature. In the first quarter it lost broadband customers for the first time, and missed revenue forecasts. Its share price is down by 32% this year. Nicolas Didio of Berenberg, a private bank, says Iliad had become like “a teenager who grew quickly and became too lanky”. Its lean cost structure—eschewing high ad spending and a heavy physical retail presence in favour of online sales—had been its competitive advantage. But it expected customers to run to it, says Mr Didio, and forgot they can be couch potatoes.

To its credit Iliad has reacted swiftly, by shuffling management, bringing in new talent and adjusting its broadband offer and its promotional activities. It is to launch a new Freebox in September. “The market is more mature and competitive,” says Thomas Reynaud, its boss, “so we’re adapting our commercial strategy.”

Yet the timing of its recent troubles, just as it ventures abroad, is undeniably awkward. A report by Macquarie, a bank, envisages a scenario in which Iliad could end up being one of the smallest operators in both France and Italy.

Iliad’s Italian venture is the upshot of a merger between Wind of VimpelCom, a Russian firm, and Tre, of Hong Kong-based CK Hutchison, which was approved by the European Commission in 2016 on the condition that space be made for a fourth operator. Iliad was able to buy frequencies, and use the Wind-Tre network (which will take another year or so to fully merge), while it builds its own.

Yet gaining traction will be challenging. Market conditions are unlike those when Iliad launched its low-cost offer in France in 2012: prices are already low. In a pre-emptive move last year, TIM, a former state monopoly, launched Kena Mobile, a low-cost brand. David Marcus of Evermore Global, a shareholder in TIM, argues that “if [TIM] didn’t lose to other players, it won’t lose to Iliad.” By now all the large operators including Vodafone, one of the world’s largest, have launched lower-cost offers. Italy also differs in that pre-paid SIM cards dominate, so there is little novelty in being without a contract. And the law stipulates that providers identify their clients before activation, an added cost given Iliad’s sparse retail network and online focus.

Another hurdle will be building a consumer brand. When Iliad launched its mobile service in France, it was an established broadband provider with millions of clients, but it is unknown in Italy. Launching at a time of political and stockmarket volatility may have limited the press coverage it received, suggests Mr Didio, though he quips that Mr Niel’s maverick persona may fit with the anti-establishment mood. He expects Iliad to grab around a tenth of the market within a few years. If successful, it may expand into broadband. Italy’s entrepreneurs doubtless hope Mr Niel imports startup camps and coding schools, too.

Source: economist
A maverick French telecoms firm attempts Italian conquest

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