French cellular upstart Free is looking to increase its coverage by joining the network sharing agreement between rivals SFR and Bouygues Telecom. It fears being left in the cold to compete with the former monopoly Orange France if not included in a deal, as it continues to shake up the French market with its low cost offerings ‘ which have this month expanded to LTE, at no premium over 3G.
Iliad’s Free, the second largest French ISP, has reached out to SFR and Bouygues through its CEO Maxime Lombardini. In a letter addressed to them and French telecoms and competition regulators, Lombardini said that Free would be in a weaker position if it were forced to compete with Orange on its own. The exclusive talks began in July and are expected to close by the end of the year.
According to French newspaper Les Echos, Lombardini branded such an outcome as a ‘legally questionable and a major destabilizing factor.’ When Free entered the market at the beginning of 2012, it instigated a price war and seized a 10% market share in a couple of years of operation. The SFR-Bouygues agreement is expected to offer services to over half the population. SFR and Bouygues are bitter rivals of Free, which has crashed pricing in the French cellular market using its own Homespot WiFi network for data offload, and has built precious little of its own base station network ‘ about 10% of the 27,000 that it is thought to need to cover all of France. However by focusing these in high density population areas, it claims to cover 50% of the population.
Free has a legal obligation to cover 27% of the French population by 2012, 75% by 2015 and 90% by January 2018.
Free is paying over €500m a year to Orange in its roaming agreement so sustain connections outside of its own base stations and Homespots. Rivals might say that this money should be used to build more base stations, but if it were paid to SFR and Bouygues in roaming fees instead, and a RAN share agreement could be agreed upon, then it would be a €1bn swing in their favor ‘ €500m from Orange and the same €500m to them, and bolster their network spend.
For its own part Free is on a deadline ‘ if it cannot renew that roaming agreement with Orange in 2016, then it either needs another roaming deal or better still a full RAN sharing deal in the next 12 months or so, otherwise it will have to start building out its own network in earnest to meet obligations it made to the regulator.
All network-sharing agreements are subject to approval by the French antitrust authority and the regulator Arcep, who will consider both coverage and infrastructure criteria. An Arcep press release said that the current 4G licensing framework encourages such sharing under certain conditions.
The agreement would see the rivals share network hardware, something that has not been widely implemented in France, when compared to other EU nations. The French regulatory position is that in order to reduce consumer prices it needs to promote competition, and so it was reluctant to approve such arrangements.
Free was the fourth operator to win a 3G spectrum licence, and it has only this week launched a 4G service, with no price hikes, so still at a fraction of the prices of its rivals. With 20MHz of 4G spectrum, it can offer theoretical download speeds of 150Mbps, and a LTE data allowance of 20Gbytes before throttling speeds for each consumer. Free has been tearing into the margins of rival MNOs.
One chip that it can add to a RAN sharing equation would be to make its own fivem homespots ‘ secondary SSIDs on its home router Boxes, which allow a commercial hotspot operation ‘ into the equation. If Bouygues and SFR customers could use these for Wi-Fi offload, along with their own WiFi networks, it would greater reduce the need to build quite so much new RAN.
But in shaking up the pricing in the French cellular market, Free has upset its competitors, and so its move to negotiate a Radio Access Network (RAN) agreement may rankle with SFR and Bouygues. Free says that Orange has expressed no interest in network sharing, only renegotiating its current roaming agreement, worth between €500m and €700m per year.
Speaking at the Morgan Stanley Barcelona conference, Orange CEO St’phane Richard said ‘a market in France with four MNOs is not sustainable, so I am convinced that we will reduce the number of players in France.’ He predicted no short term growth in France for Orange, due to the ongoing price war.
Orange still intends to stick to an earlier plan to charge a premium for 4G services, while Free has said that it will offer customers LTE bandwidth for no extra cost. However, Orange was very dismissive of Free, announcing that it is ‘not afraid of an offer that is backed with no network.’
Should SFR and Bouygues share Orange’s view that a three-operator network is optimum, they may wish to leave Free to go it alone, in the hope that it fails. Free’s spectacular entrance to the market suggests that this would be wishful thinking by the incumbents.