Free Mobile’s entry to the French market has had a dramatic impact, sparking price wars, job losses and mergers among its more traditional rivals ‘ Orange, SFR and Bouygues. SFR is now being acquired by cableco Numericable while Bouygues and MVNO Virgin Mobile are said to be seeking mergers. But while the once complacent cellcos are feeling the impact of Free, and consumers have gained some lower rates, the rise in competition is not being reflected in the quality of the services, as highlighted by five investigations launched by regulator Arcep. That will only intensify the trend to reduce prices while improving services, by harnessing ‘WiFi-first’ tactics, as seen at Free.
Arcep this week revealed it has mounted five separate administrative inquiries into mobile network roll-outs as well as wireline QoS. It will investigate all four cellcos to see whether they are meeting their coverage requirements. Under its licence obligations, Free Mobile is required to cover 75% of the population with its own 3G network in metropolitan France by January 12 next year. In one of its probes, Arcep will assess
whether the cellco is ’employing all means necessary’ to meet its obligations, while all four mobile carriers will be investigated in relation to 3G roll-outs in rural areas. The cellcos previously committed to deploy a shared 3G network in 3,500 rural communities by the end of 2013, though Arcep says this has so far only achieved 25% of its target. Other investigations will focus on whether SFR has met its 3G coverage obligations, and will look at the quality of service provided by Orange, for enterprises and in terms of universal coverage.
All this highlights the pressures on the French cellcos to meet coverage and quality targets while dealing with an intensive price war and competitive landscape. WiFi offloading may help in some ways, relieving pressure on the mobile networks and freeing up some time and budget to attend to 3G and improve QoS. But, since WiFi is the killer tool with which Free has moved all the goalposts in France, it can also be a threat.
WiFi offload is a bit like global warming. People want to argue that it is not happening until it is too late. In France it is starting to look like it’s too late. As well as announcing its probes, Arcep released data showing that revenues had fallen 27.2% in metropolitan areas of France, with retail payments down 14% in 2012. The unravelling of France Telecom payments from Orange adding a further 13% to that ‘ now the two are fully merged in operational terms, there is no artificial wholesale payment from one to the other. In 2012 the price fall was 11.4% for metropolitan residential mobile revenue.
The entire process comes at a time when demand for both data and voice are escalating and is caused directly by the arrival of Free into the mobile market, which offers pricing as low as a few Euros a month for a new mobile connection, and has used this pricing to amass over 7m customers in just a few years. Free can only afford this by seamlessly offloading over 70% of all data traffic to its homespot network of 5m WiFi homes.
Some more details from the French experience give us some idea of what the rest of the world has ahead of it. A real income decline over two years of 25.4% in metropolitan areas (the effects of the wholesale pricing change at Orange being ignored); a fall in employment from 156,000 in 1998 in the mobile industry to 125,000 now; fixed telephone traffic down 10% in 2013 – though SMS rose by 10bn messages and data by 63%, and mobile calls rose by 18bn minutes in 2013. Internet lines grew to 24.9m of which 22.5m were ADSL with the number of subscriptions in VDSL2 up by 450,000 a 27.9 % rise and fiber subscriptions up 72.2% adding 234,000 additional fiber subscriptions.
Of course the more fixed lines there are, the more potential for more access points and each of these fixed lines is likely to be terminated in WiFi, and where an operator provides this, they are likely now to offer a second SSID to make each one a homespot. And the more homespots there are in France, the more data that phones and tablets can use, without touching the cellular network.
Across all of France, not just the metropolitan regions, mobile revenues rose by 1.3% in 2009 and 2.9% in 2010, then fell by 2.6%, 7.6% and 14% since ‘ they are now some 24% off their high in 2010, so we can see that the past two years have seen massive acceleration in revenue decline.
All other markets need in order to experience the same degree of disruption is for one or more fixed line operators to embrace homespots and come out with a WiFi-first cellular service, which only uses the 3G/4G network when WiFi is unavailable. This is happening across the US, in the Netherlands and is likely to extend to Germany, Spain and the UK shortly, with other European countries to follow.
As soon as a household name operator offers such a service, cellular prices will fall and the entire cellular ecosystem will suffer an immediate and prolonged capex challenge. Initially mobile operators will respond by committing to more capex, as happened in France during 2012, but as it becomes obvious that this has too little effect, cellular operators will mimic the WiFi offload practices of the leading disruptor. It is this emulation of Free’s strategy that has led to the massive market falls in France.
Operator spending in 2013 was €7.2bn, and excluding payments for spectrum investment levels have been consistently above €7bn for the past three years. Operators’ mobile business accounts for around a third of their capital expenditures, with spending on new generation high-speed mobile (3G and 4G) systems in 2013 estimated at around €1.7bn.