Nearly 6 months after Free Mobile’s commercial launch, every week brings further aftershocks to the seismic shift it has triggered. The latest one occurred last week at the second operator SFR which lost its executive chairman and not-yet arrived new CEO as its parent company Vivendi intends to explore strategic options for the SFR unit.
This turmoil reflects both the significant impact Free Mobile has already had and the long term disruptive force it represents for the market structure. Despite operational hiccups at launch, Free had secured a 4% volume market at the end of March and an estimated 8% at the end of May. Although its value market share is significantly lower (estimated at 2.5% at the end of March), its extremely lean cost structure and disruption precedent in the DSL space (where it is currently holds a 25% market share) contribute to its long term competitive threat. In this context, other French mobile operators are adjusting to the new normal through various tactics.
Last Fall, they had all anticipated the Free Mobile launch by starting low cost second brands (Sosh for Orange, Red for SFR, B&You for Bouygues) to compete on prices. These brands were based on simplified offerings combining SIM only plans and online activation and support. However, the price plans of these offers did not match Free Mobile’s aggressiveness. All operators revamped their low cost offerings with quickly after Free’s launch with 30% to 40% price reductions, while not perfectly matching Free’s unlimited €19.99 monthly offer. Sosh from Orange has sought greatest differentiation from the Free Mobile offer with two cheaper plans that include limited calls but attractive data connectivity: a €9.90 plan with unlimited Facebook and Twitter usage through a dedicated application and a €14.90 plan with 1GB 3G data allowance and throttled speed beyond this allowance. It has also recently added unlimited SMS from any EU country and French Overseas Territories to its €24.90 unlimited plan that directly competes with Free’s reference offer. Overall, both Bouygues and Orange have announced they were satisfied with the commercial performance of their low cost brands, securing 330k and 350k subscribers respectively by the end of April.
Beyond those second brand tactics, established operators are also starting to make some adjustments on their main brands: interestingly, it is the incumbent operator Orange that led the most radical adjustments by streamlining its main brand offering down to only 3 plans and with a 20% price reduction across the board. While SFR and Bouygues were not as radical, they also started to make SIM-only offers available across their offers to compete with Free’s no handset subsidy strategy.
Operators have also begun to trim down their cost structures to adjust to expected lower revenues (Bouygues anticipates a 10% revenue decline this year). Both SFR and Bouygues announced significant cost reduction plans effective this year and involving at least 5% headcount reduction. Orange has not announced any cost reduction plan but is in a more favorable position as it will generate up to €2 billion wholesale revenues during the next three years, offering nationwide roaming to Free Mobile.
Finally, the three established mobile operators have announced they will accelerate their LTE rollout plans with an explicit objective to differentiate by selling higher quality data connectivity services at premium rates. Orange is already testing this “quality price elasticity” by offering HSPA+ access only to its highest paying customers (Origami Jet+ plan). Orange will roll out LTE in 5 major cities by the end of 2012 to launch commercial service. Bouygues and SFR have announced similar schedules with less detailed rollout plans. Meanwhile, Free Mobile LTE plans are sketchier: it has secured less limited spectrum than its competitors that could be sufficient for LTE offload in high traffic areas but it also hopes to secure a nationwide roaming agreement with Orange.
The new French mobile market landscape has not stabilized yet and the operational transitions initiated could pave the way to broader capitalistic adjustments at both Bouygues and SFR and even at the European level (see how the Orange Deutsche Telekom merger theme has reemerged). It could also make France a fertile experimentation ground for new carrier business and operational models geared for a post-voice and commoditized-data era.