Free grows revenue share of shrinking French mobile market, may face new challenge from Altice

Thursday 9 April 2015 | 11:04 CET | Background

The French mobile revenue pie continues to get smaller, while Free Mobile takes a larger share of it, according to the latest figures from Telecompaper. The smallest operator showed the strongest growth, in both customer numbers and revenues, in 2014, but could soon face a new challenge if Altice continues to consolidate the market. The ongoing price pressure, erosion in revenues and need for network investment may soon drive Bouyges Telecom into the arms of Numericable-SFR.

In the fourth quarter of 2014, French mobile service revenues fell by 3.5 percent year-on-year and were down 1.5 percent from the previous quarter to EUR 4.3 billion. Total revenues for the full year 2014 came to EUR 17.6 billion, a drop of 5.9 percent.

Free was the only operator to see an increase in postpaid revenues, of 36.5 percent in Q4 2014 compared to Q4 2013. Bouygues recorded the largest drop, losing 8.5 percent annually of postpaid revenues, while Orange and SFR/Numericable both posted declines of just over 4 percent. Free Mobile took a 9.6 percent share of the postpaid revenues in Q4 2014, up from 6.9 percent a year earlier. All three (as Free doesn’t offer prepaid) also noted annual decreases in prepaid revenues, with Bouygues losing as much as 31 percent on an annual basis.


Total customer base increased due to mergers with MVNOs

Free grew its customer base by 25.7 percent annually and by 5.5 percent quarterly in the last three months of 2014. Orange lost 1.5 percent of its customers annually and 0.7 percent quarterly, while Bouygues saw a quarterly increase of 0.7 percent but an annual drop of 0.2 percent. SFR benefited from the acquisition of Numericable and Omea’s mobile customers and also was the only player to see its prepaid base increase.

With Free only offering postpaid, the share of prepaid customers in the market continued to decline in 2014. Total prepaid numbers were down by 13 percent, and postpaid’s share increased to 86.5 percent of customers at the end of 2014, versus 83.8 percent a year earlier.

Although the operators have been reporting an increase in average MB used per month, thanks to the ongoing roll-out of 4G networks, they have not yet been able to translate this into extra revenues. Non-voice revenue only grew 5.5 percent year-on-year in 2014, but this was not enough to compensate for the 13.3 percent drop in voice revenues. In the fourth quarter, non-voice revenues only grew by 0.4 percent, while voice revenues declined by 3.8 percent.

With its service revenues growing faster than its customer numbers, Free Mobile reported an increase in blended ARPU to EUR 13.2 in the fourth quarter of 2014 from EUR 12.2 a year ago. ARPUs were lower at all the other operators.

French mobile market to remain under pressure

The French mobile market has clearly not yet turned a corner, as some other countries in Western Europe are showing signs of. More consolidation may be inevitable, as the operators still face significant investment obligations. The French Prime Minister recently called for 3G to be available in all ‘not-spots’, while operators also are still busy rolling out their 4G/LTE-A networks. The regulator Arcep meanwhile is preparing an auction of the 700MHz band later this year.  This will lead to improved indoor network coverage, but again adds to the operators’ capital expenditure for 2015.

The recent merger of SFR and Numericable has not yet had a significant impact on the French mobile market. However, rumours continue to circulate that SFR/Numericable’s parent Altice wants to buy Bouygues Telecom. Altice itself said last year that it is the most natural buyer of Bouygues Telecom. Such a merger would have a significant impact on the French mobile market, reducing the number of players to three. The new entity would have around 47 percent of mobile customers, based on end-2014 numbers, raising the question whether French and EU competition authorities would allow such a deal to occur. Altice will undoubtedly face a similar EU investigation as that into Telia and Telenor’s merger in Denmark, as a similar situation, with two large players and one smaller one, would be created.  A Bouygues/SFR/Numericable merger would presumably require conditions such as selling part of Bouygues’ mobile frequencies and obligatory wholesale access to the network. Free Mobile would be the most logical candidate to buy the Bouygues spectrum.

Bouygues has said that it aims to go it alone, but is always open to interesting offers. If the market was reduced to three network operators, this could just put an end to the price war, or at least bring some relief to operators. The merger could create considerable synergies for Altice/Bouygues (not only at the level of network, retail and wholesale, but also operational in terms of marketing, HR, back office), allowing it to withstand the price pressure while also continuing to invest. Many might expect Altice to take a pause in order to focus on integrating SFR and Numericable, but its appetite for deals does not appear diminished, based on recent comments from its executives.

A SFR/Numericable/Bouygues tie-up would leave Free a small player (14% market share in Q4 2014) against two big rivals, further testing its ‘challenger’ position. However, all three operators would be fully integrated (fixed + mobile) and able to use their mobile propositions to drive the migration to quad-play and reduced churn in the French market.

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