Research Notes

French Free Mobile has successfully launched a real MVNO strategy and in just a few days changed the French mobile market for ever

The 10th of January 2012 is a date that will enter the annals of French mobile history. That was when Free Mobile launched in France using an identical strategy to the strategy being used by number of very successful MVNOs across Europe.

For our analysts at Strand Consult the recent events in France come as no surprise at all. Strand Consult has been analysing the mobile industry for the past 17 years and advising market players on how to optimise existing mobile strategies and create innovative new mobile strategies. Free Mobile simply decided that there was no reason to reinvent the wheel, when they could see that some other MVNOs had already proved how to be successful on a mobile market with high prices, high mobile handset subsidies and a number of operators that have been unwilling to evolve and were instead clinging on to an old business model.

What Free has done is to launch on the French mobile market with a SIM-only product and a choice between two subscriptions. The first subscription is for ordinary mobile customers that pay 19,99 euro for unlimited minutes and SMSs. The second subscription is for Free’s broadband customers, who can purchase a subscription for 15,99 euro with no extra charge for their  broadband connection.

The path that Free has chosen is the same as Telmore and CBB originally launched with in Denmark; no handset subsidies or expensive distribution and instead using the saved money to reduce their mobile voice and data prices. Having a low SAC is a quick and efficient way to lower voice minutes prices, resulting in a growth of mobile traffic that will often compensate for the low prices. One of the good things about this business model is that it is the customers with the highest consumption that will benefit most by changing to a market player like Free.

Prior to Free launching, the French mobile operators announced that they were ready for Free. The question is whether they really were ready and whether Free’s French strategy is what the operators were expecting? One thing is certain, and that is that Free has had a much better launch and initial first couple of weeks than even the largest optimists had predicted.

Historically this is not the first time French Telecom / Orange is facing this type of competition. During 2000 to 2003 the two MVNOs Telmore and CBB were using the same strategy against Orange in Denmark. The result back then was that Orange was totally outmanoeuvred by the small MVNOs, which had such an impact on their business that Orange chose to sell their Danish operator business and leave Denmark, leaving behind enormous losses.

In Holland the mobile operator Telfort used almost the same strategy as Free is now using in France. Telfort used a multibrand strategy that was executed by a number of MVNOs with the same result as in Denmark – Orange subsequently chose to leave the Dutch market and sell their operator business to T-Mobile.

Seeing what is currently happening in France is giving us a feeling of déjà vu here at Strand Consult. It reminds us a great deal of what we have seen happen in Denmark, Germany, Belgium and a number of other countries. But seeing how fast things are moving forward this time indicates that Free is probably better at implementing their strategy than some of the other market players were when they originally launched.

So what will happen on the mobile market in France? We have no doubt – it is written on page 133 of our report How to Succeed in the Second-Generation MVNO Market. What will happen is that mobile prices will fall, mobile traffic will increase, mobile dealer commissions will be reduced and mobile handset subsidies will be cut to the bone. Free will acquire large market shares and the French mobile industry will face a number of large cost cutting programs over the coming years, to compensate for this new development that has been set into motion by Free.

The big winners will be the French consumers. They will experience a mobile market with lower prices and increased competition. The savings consumers get will be financed by lower subsidies for mobile handsets, leaner mobile operator organisations and in the longer term, a consolidation of the French mobile market where we would not be surprised if SFR and Bouygues see an advantage in merging their companies into one large mobile operator.

The fact that Free is wholesale customer and roaming partner with Orange is probably the most intelligent decision France Telecom has had in many years. In practical terms, Free helps France Telecom in the fight against SFR and Bouygues, and every time Free gets a new customer, Orange gets a share of the traffic that customer generates. Simply put, Free is doing the dirty job for Orange, and every time Free sign up a client, SFR and Bouygues looses and Orange wins.

One thing is certain and that is that what is currently happening in France is so predictable that it almost hurts! If you read our report How to Succeed in the Second-Generation MVNO Market or any of the many other MVNO reports we have published through the years, you will recognise exactly the current French scenario.

For a number of years the French operators have had an oligopoly and have not understood what would inevitably happen on a mobile market with high penetration. They have simply been sleeping in class and made it extremely easy for Free to launch on the French mobile market.

What is happening in France cannot be undone. Mobile prices are decreasing for good and there is only one way that market players can compensate for the revenue loss they now will experience, and that is by cost-cutting and even merging operators or networks. If they have not already done so, the French mobile market players will soon realise that the French mobile market has now changed for good.

If you would like to learn more about how the French mobile market is currently developing and our views on this market, please purchase our report How to Succeed in the Second-Generation MVNO Market. You are also welcome to request more information about our strategic workshops that we hold a number of times each month for the top management of mobile operators around the world. These challenges are not as complex as they may initially appear and there are a number of strategies that can help secure the shareholders’ investments.
More information:
How to Succeed in the Second-Generation MVNO Market
Executive Workshop

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