Free Mobile continues to wreak havoc on the formerly slow-moving French market. The growth of the low cost operator’s market share, and the price war it has unleashed, hit revenues at SFR, France’s second cellco and the biggest business unit of media giant Vivendi.
Vivendi missed analyst forecasts for its first quarter profits as SFR suffered an 11% year-on-year revenue decline, as it faces the second year of price competition with Free, which is owned by Vivendi’s rival broadband and IPTV group, Iliad.
While Iliad was reporting Q1 mobile revenues which tripled on the year-ago quarter, to hit €294.5m ($380m), SFR saw an 11% drop, to €2.6bn, which it blamed heavily on price competition with Free. Last month, market leader Orange reported an 8.1% fall in Q1 revenue, also pointing to the Free factor as a key reason, along with eurozone recession.
‘This has been a tough quarter,’ said Vivendi CFO Philippe Capron during the earnings call. ‘Really we feel a worsening economic environment across the board in basically all our activities, but especially in France.’
The future of SFR has been in doubt for some time, and many have speculated that the tough market conditions in the French mobile sector would push Vivendi to sell or spin off its cellco unit. Its former joint venture partner in the operator, Vodafone, was even said to be interested in a bid. However, Vivendi was cautious on the subject and would only say that an IPO was an option, but not in the near term. Some investors have been disappointed that Vivendi has not yet delivered the radical restructuring plan it promised last year, though it is seeking to sell off some units. It is considering bids for its majority stake in Maroc Telecom but has declined offers for its Brazilian GVT unit.
In fact, Free has been a breath of fresh air for French consumers, which still have some of the highest mobile tariffs in Europe, but the three main cellcos (Orange, SFR and Bouygues) have been forced to cut costs and jobs in order to adapt their structures to the new market landscape. Mobile ARPU in France fell to $36.25 during the last quarter of 2012 from $43.37 a year earlier, according to Informa, but the figure is still above $30.37 in the UK and just $18.67 in Germany (even though the latter has the most advanced LTE roll-outs of the three countries so far).
Vivendi’s shares fell by as much as 1.8% on its results, which saw EBITDA down 21% year-on-year to €1.18bn, below analyst estimates of €1.26bn. Adjusted net income was down 19% to €672m while group sales fell by 1% to €7.05bn. At SFR, EBITDA was down 42% to €328m and Maroc Telecom’s earnings were flat. Other key Vivendi subsidiaries such as Activision, Cacnl Plus and Universal Music also saw double-digit earnings declines. All Vivendi units are ‘taking a hard look at their costs,’ Capron said.
At the end of the quarter, SFR’s total mobile customer base was 20.72m, with growth in its contract customer base offsetting weakness in the prepaid segment which Free targets.
Smaller rival Bouygues gained 20,000 net new mobile users but saw its telecoms revenue fall by 16% to €1.15bn, citing the ‘disruption in the mobile market’ which had occurred since the year-ago quarter. It added that it had raised its cost cutting targets for its mobile unit, from €300m to €400m a year, but that additional measures decided in the first quarter ‘have still not paid off’.