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Small quarterly gains in service revenues first signs of recovery for French mobile operators?

Wednesday 30 September 2015 | 08:13 CET | Background

The second quarter of 2015 is the first quarter since many that the French mobile operators all show small improvements in service revenues. Free remains the best performing operator, and Bouygues the least performing. The prepaid base in France continues to decline, but the increase in postpaid customers has not led to an increase in postpaid ARPU except for SFR. All MNOs offer extra services to attract new customers and to entice them into subscribing to the more expensive plans. The next few quarters will show if this quarterly increase was more than a seasonal influence, but the pressure for consolidation in the French market is likely to remain.

The second quarter of 2015 is the first quarter since many that the French mobile operators all show small improvements in service revenues. Free continues to have the largest increase, at 2.7 percent compared to Q1 2015, followed by Numericable/SFR, Orange and Bouygues at 1.0 percent. The increases were thanks to the small absolute gains in postpaid revenues being larger than the losses in prepaid revenues. Compared to a year ago however, all operators apart from Free lost postpaid and prepaid revenues. Percentage wise, Bouygues lost the most revenues compared to Q2 2014, seeing its postpaid revenues decline by 5.3 percent and its prepaid revenues by 26.6 percent.

Service revenues still declining compared to last year despite growth in customers

The annual decline in service revenues was despite a growth in postpaid customers of 7.5 percent compared to the second quarter of 2014. In the second quarter of 2015 all operators, except for Numericable/SFR, also noted an increase in the number of postpaid SIMs. At the end of June 2015 the French mobile market (including M2M and MVNO customers at Orange) counted a total of 72.6 million SIMs, of which 88.2 percent were postpaid SIMs.  

The prepaid base in France has been steadily declining, having lost nearly three percentage points since Q2 2014. Orange accounted for the largest drop in prepaid SIMS since last year, with a reduction of 1.2 million prepaid SIMS, out of the total 1.6 million lost in the past year.

Orange, Bouygues and Free all three showed the same pattern in the second quarter of 2015: they gained enough postpaid customers to increase their service revenues despite a (small) decline in postpaid ARPU. Numericable/SFR on the other hand lost postpaid customers in the second quarter (partially due to the closure of virtual operator Joe Mobile) but still saw its service revenues go up thanks to a small increase in its postpaid ARPU. It stated that postpaid gross adds accelerated in June after it launched new offers in May 2015 and that their focus on high-end customers and quad play is bearing fruit.

Currently the offers from the three largest MNOs do not differ greatly, neither in terms of price nor the included volume of minutes, SMS or data. (Free continues with its simple offering of two plans only). Most plans include unlimited minutes and SMS, but all also still offer a smaller plans with 2 hours worth of minutes. The main distinction between the plans is based on the number of MBs included and which extras are (not) included and the corresponding monthly fee, with obviously the more extras included the higher the monthly fee. Subscribers to those plans will be the high-end customers that SFR referred to.

Extra services used to differentiate between plans and to attract customers

All four MNOs have been extending the extras they are offering to attract new customers. These include usage in the EU, access to services such as music service Deezer, mobile TV or cloud storage. These efforts to make their offerings more attractive show that the operators are still facing a difficult time in gaining new customers and making enough money out of those customers. The difficult times are also shown by the fact that several (large) virtual players have decided to cease their activities: Joe Mobile in the second quarter as well as the announcements by Simyo and Carrefour that they will stop later this year. Operators need to steal customers away from each other or find new growth areas, such as M2M/IoT, or look for different options such as close(r) co-operation with OTT providers or a merger.

In the fourth quarter of 2015 the auction for the 700Mhz spectrum will take place and this means extra costs for the operators, which could impact their year-end total revenues. After the auction and the reassignment of spectrum to be finished in Q1 2016, the operators should all have the necessary spectrum to fully advance with their 4G roll-out. Orange is currently the furthest with its roll-out, covering just over 75% of the population.

It is to be expected that the advances of 4G will support the French MNOs in increasing their service revenues, as they have been hinting at and it has done in for example the UK. If the current increase in service revenues is not due to any seasonal effects, we should also see some improvements in the next few quarters. The pressure for further consolidation is likely to remain however, as Bouygues is still the worst performing operators out of the four in terms of service revenues and may struggle to improve them significantly. Another merger would be welcomed by some as both Orange CEO Richard and the association of the largest MVNOs have stated that a reduction to three MNOs from the current four would be positive for the total mobile market in France.



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