Incumbent French telco France Telecom/Orange, long infamous for its disdain, smugness and over-developed sense of entitlement to customer loyalty (and their cash) despite doing precious little to earn it, has had a rude awakening to the realities of life in a rather more genuinely competitive environment - one that it hates, fears and does not understand, as Martyn Warwick reports.
Iliad's upstart operator Free Mobile has hit France Telecom (FT) where it hurts most - its pocket and its pride - and the incumbent's reactions would have been comical were they not so absurd. FT's attitude to Free has been Shakespearian in its range of impotent bluster, denial and fulmination that mirrors King Lear's threat of "I will do such things, what they are, yet I know not: but they shall be the terrors of the earth." Except that the threats were no more than the ramblings of a feeble old man who couldn't do anything to prevent change.
Free Mobile's low-cost services have taken France by storm and FT by surprise. Th incumbent carrier's Q1 operating profits fell by 8 per cent as a direct result of Free's popularity. Some 615,000 disgruntled FT customers churned away to Free within weeks of its launching in January this year.
The attrition continues and FT's Chief Financial Officer, Gervais Pellissier, eventually had to acknowledge the fact that Free is no flash-in-the-pan but a determined long-term player of such power and potential that it will prevent FT from fulfilling the strategic plans and financial goals for the period 2013 to 2015 it trumpeted to the world in the days before Free took the French mobile market by the scruff of the neck and shook the living daylights out of it,
Quite simply, Free has upended the comfy wireless status quo that pertained in France before it entered the market and, in a matter of a few months, has changed the mobile landscape forever - and not before time.
Before Free broke the mould, mobile margins in France had been at 35 per cent and above for years on end with customers paying through the nose for uncompetitive over-priced services. Six months those days are over for good and operator margins have fallen back to the mid-20 per cent mark and look set to fall further.
FT had plenty of time and opportunity to make necessary changes but chose not to do so in the arrogant expectation, with its huge reach and deep pockets, it would be able to see off the upstart and then return to the good old days of exploiting quiescent and grateful customers.
It hasn't turned out like that though.
Yesterday, FT announced that its ARPU will fall by at least 10 per cent this year, directly as a result of Free Mobile.
And FT's response to this existential threat? It is to introduce a suite of new "mobile offers" that will cost 20 per cent less than their earlier equivalents. Delphine Ernotte, the boss of FT's domestic mobile unit says the new offer ("Origami", which says it all really in as far as it refers to a new series of folds providing something ostensibly different whilst it's actually the same old sheet of paper that is being bent out of shape) will see customers getting subsidised handsets in return for signing up to two-year contracts, a doubling of the present minimum lock-in period.
At its lowest end, the Origami range is priced at €24.90 a month for an hour of calls and unlimited SMS and MMS. The new top of the range will cost punters €159.90, a month, but they will be able to "upgrade " their smartphone once a year.
FT says its new offer brings its tariffs "in line" with those that have already been introduced by its well-established competitors SFR and Bouygues Telecom. But Bouygues and SFR did at least see trouble looming some time ago and reacted more quickly than FT but even so they too are losing ground and customers to Free.
Furthermore, FT's new packages are still very substantially higher than Free Mobile's. For example, for €19.99 a month Free subscribers get unlimited voice calling, SMS and MMS and as well as 3GB of data.
FT isn't living in the same world - indeed, some analysts opine that the old incumbent is living in a completely different world, an imaginary one where it is forever the year 2000.
Reaction by analysts and consumers to FT's latest half-hearted initiative has been muted in the extreme. Investors know when the writing's on the wall though. FT's share price has fallen by 35 per cent so far this year and the slide continues at double the rate of the rest of the French telecoms sector.
It all goes to prove that the nervous system of a dinosaur is so sluggish that the beast doesn't know it has received a mortal wound until it drops down dead and another Brontosaurus bites the dust.
please sign in to rate this article