French mobile operators struggle to turn extra services into higher revenues

Friday 31 January 2014 | 15:39 CET | Background

The number of SIMs in France continues to increase, ending Q3 2013 at a total 68.2 million, up 4.0 percent compared to a year earlier, according to Telecompaper's latest research on the French mobile market. Free gained the most new customers, while Bouygues was the only one to lose customers. Despite the increase in customer numbers, the French operators, apart from Free Mobile, still saw a drop in service revenues in Q3 2013. This is largely due to the continued enhancement of mobile plan allowances, with unlimited national use, more international destinations and 4G speeds, without any proportional price increases.

SIM base continues to expand in France

The total number of mobile SIMs in France increased to 68.2 million[1] at the end of September 2013. This represents a 1.0 percent increase compared to the previous quarter and a 4.0 percent gain compared to Q3 2012.

Free gained the most market share over the past year, ending Q3 2013 with a 10.9 percent share of the SIMs, up from 6.7 percent a year earlier (see figure 1). Despite the fact that Bouygues and SFR gained some customers (0.1 million and 0.4 million respectively) their market shares declined slightly. At the end of Q3 2013, SFR had 31.2 percent of the market, down from 31.8 percent the previous year, while Bouygues’ share stood at 16.3 percent, a loss of 0.5 percent on a yearly basis. Orange lost the most customers in the 12 months, down by 0.9 million SIMs, but was still solidly in the lead with 41.6 percent of customers. 

Figure 1: Total mobile connections per MNO in France, in millions and percentages. Sources: company reports, Telecompaper estimates


In the last quarter Free saw its base grow the most, increasing its numbers by 9.4 percent, while Orange and SFR both reported growth of 2.1 percent in total customers. Bouygues however recorded a loss of 0.5 percent.

The three biggest MNOs all lost prepaid customers (Free only offers postpaid), likely due to the growing number of affordable plans available on a month-to-month basis. These no-contract postpaid plans are mainly available from the MNOs secondary brands, such as Sosh (Orange), Red (SFR) and B&You (Bouygues), which were introduced to compete with Free’s low-cost offers. Bouygues lost 29.4 percent of prepaid customers compared to September 2012, Orange lost 16.6 percent of its prepaid base, and SFR noted a decline of 20.1 percent in prepaid.

On an annual comparison, all four MNOs increased postpaid numbers. Orange’s postpaid base grew by 2.6 percent compared to last year, SFR’s increased by 7.8 percent, and Bouygues saw a gain of 6.7 percent. Free continued to attract postpaid customers, as its base grew by 68.8 percent year-on-year. As a result, the share of postpaid customers in the French mobile market has increased from 78 percent in Q3 2012 to 83 percent in Q3 2013.

According to French regulator Arcep, over 40 percent of postpaid customers at the end of Q3 were not tied to a contract. Operators have taken advantage of this by running numerous “flash” promotions, such as the first six months of a plan at a sharply reduced price, in order to convince consumers to switch. This has kept the number of number portings in France at a historically high level – over 1.3 million numbers ported in Q3 2013 alone. The high churn represents a cost for operators, both in terms of sales and margins, as they continually revise their offers to compete for customers with little loyalty.

All operators apart from Free show reduced service revenues

Despite the growing postpaid base in France, ARPUs have decreased, in part due to the above-mentioned promotions. The service revenues for the total market fell by 6.2 percent to EUR 4.8 billion in Q3 2013. The monthly blended ARPU for the market went from EUR 27.3 in Q3 2012 to EUR 23.5 a year later. Free was the only operator to show higher revenues in the quarter, while the other three lost around 30 percent in prepaid revenues and also saw their postpaid revenues go down.

Decline in revenues due to improved offers without price hikes

Regulator Arcep reported an increase in the total number of SMS sent in Q3 2013, but the annual growth rate has been slowing since Q2 2013, when quarterly growth turned negative. The average monthly number of SMS sent per mobile customer grew slightly, from 230 in September 2012 to 246 in September 2013. The average number of monthly outgoing minutes increased from 154 in Q3 2012 to 176 in Q3 2013, which, according to Arcep, was driven by the high take-up of mobile plans with unlimited calls to national numbers.

The decline in service revenue can in part be attributed to the operators increasing allowances on many plans without raising prices, leading to a reduction in out-of-bundle charges. In April 2013 Free started offering customers on its EUR 19.99 plan the possibility of using their phones in Portugal without roaming fees for up to 35 days per year. In January 2014 it added the same option for Italy, and Bouygues announced it would add free roaming in Europe to its Sensation plans from February 2014. Orange is reportedly also considering adding free roaming in the EU, and its brand Sosh already offers unlimited SMS in Europe and France’s overseas territories. Another trend has been to add new plans at higher monthly prices, but including unlimited calls to many countries, such as Orange’s Origami Play and Jet or Bouygues’s option at EUR 6 a month for unlimited calls to over 100 destinations. Free’s basic plan at EUR 2 already includes calls to over 100 countries as part of the 120 minutes available each month.

French operators have also failed to translate the launch of faster 4G services into higher prices.  Many existing plans offer 4G speeds without any increase in the monthly fee. Free started the trend when it launched 4G in December 2013, offering LTE access with no increase in price on its EUR 19.99 plan. Bouygues quickly followed with the same offer from its B&You brand, while Orange and SFR have set the bar slightly higher, offering 4G access on plans from around EUR 25 per month (while also increasing data allowances to 5GB from 3GB). The bigger operators are hoping their wider 4G coverage compared to Free, which is around a year behind them in roll-out, will justify the slightly higher prices. But they still must continue to invest in 4G roll-out without demanding much of a premium for the new service if they want to remain competitive in the market. Although increasing 4G usage is more than likely to lead to higher data revenues, it may also cannibalise voice and SMS revenues even more, leading to little increase in overall revenues. This does not bode well for 2014 when another decrease in revenues is to be expected.

The above figures are based on Telecompaper’s database on the French mobile market, which is available for purchase. For more information, click here.

[1] Customer numbers for Orange include M2M and MVNO customers. For the other operators it is exclusive of M2M and MVNO customers.

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