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French telco looks to build a new mobile operator in Italy, but the circumstances are very different from those it faced in its home market in 2012.
Iliad took the French mobile market by storm when it launched Free Mobile at the start of 2012, thus it is tempting to assume that it could have the same impact in Italy, presuming the European Commission gives the go-ahead to the 3 Italia/Wind tie-up that will give it the assets it needs to become the country’s fourth mobile network operator, that is.
But the situation in Italy is very different to that faced by Iliad in its home market four and a half years ago. Establishing itself as a credible fourth player will not be easy, irrespective of Brussels’ views on the need for facilities-based competition to ensure the health of national mobile markets across Europe.
To quickly recap on Iliad’s announcement earlier this week, the French telco revealed that it has brokered a deal to acquire a portfolio of assets that CK Hutchison and VimpelCom will divest provided they get the green light from European competition commissioner Margrethe Vestager to merge their Italian mobile operations. Those assets include €450 million worth of spectrum in the 900 MHz, 1800 MHz, 2.1 GHz and 2.6 GHz bands, as well as thousands of cell sites, plus the right to roam on the merged 3 Italia/Wind’s infrastructure.
The Commission has until 8 September to make a decision on the merger, which means Iliad’s entry into Italy could come relatively soon.
So should the country’s existing players be worried, bearing in mind that Free Mobile triggered a fierce price war in France, played a part in industry consolidation and has built up a market share in excess of 17% – it claims – in a fairly short space of time?
It would be foolhardy to say ‘no’. Iliad has proved itself to be an aggressive competitor and will no doubt seek to use its experience in France to its advantage in Italy.
Telecom Italia’s shares fell steeply following Iliad’s announcement on Wednesday and dropped further later in the day when, as reported by Seeking Alpha, JP Morgan downgraded its stock rating to neutral from overweight, based on the prospect of additional competition.
However, it is worth looking at the differences between the current state of the Italian market, compared with the French mobile sector in 2012.
Back then, France had essentially been stagnant for some time, with just three mobile network operators for customers to choose from. The arrival of a fourth naturally brought with it competition and lower prices, leading to turbulent times for Orange, Bouygues Telecom and SFR, who had to scramble to keep pace. To cut a long story short, SFR has since merged with Altice’s Numericable to create a converged player, while Bouygues Telecom ended up in aborted takeover talks with Orange as concerns about its prospects mounted.
Italy, on the other hand, is currently home to four mobile network operators and has already been through a price war; after a couple of years of aggressive pricing, the operators eased up last year, with TIM and Vodafone in particular choosing to focus on quality of service rather than pure cost.
A competitively-priced market means less opportunity for a newcomer to poach customers and build share.
It could have been a different story for Italian broadband operator Fastweb, which was linked with the 3 Italia/Wind assets and could have built up a strong presence as a converged player by adding mobile into the mix; essentially, Fastweb could have offered something that Iliad cannot easily replicate.
This week Fastweb confirmed it had submitted a plan of its own to become Italy’s fourth mobile operator by acquiring the assets and leveraging its existing fibre network. In its call on the European Commission to open a consultation into the Iliad deal, Fastweb noted that Brussels had already deemed its plan as appropriate for protecting competition in the market. That perhaps bodes well for Hutch and Vimpelcom’s chances of having their remedy package approved, but the Commission could well have been taking Fastweb’s fixed-line presence into account.
That lack of a fixed presence could make life difficult for Iliad, which relied heavily on its standing as an established broadband player when it made the move into mobile in France.
"Although Iliad was quite successful when it entered the French mobile market, that was because Iliad already had an ample fixed broadband customer base and a recognised brand that it could use to grow which won’t be the case in Italy," said Haitong analyst Nuno Matias, in a research note.
"This is our main concern on this potential move," Matias added.
However, the analyst concedes that there are opportunities to be exploited.
"Italy is one of the markets where MVNOs…have not gained a meaningful presence, which we see as an opportunity for the company," he said, adding that convergent services are still in their infancy in Italy. "Therefore there is also room for a mobile-only operation," that Iliad could augment with a fixed offer at some point in the future, he said.
Fitch does not see the competitive landscape in Italy changing significantly though, which is likely good news for the existing players.
"Market leaders Telecom Italia and Vodafone are offering competitive tariffs in a lower price range, which reduces discounters’ propensity to use price-disruptive tactics," the ratings firm noted.
"With the growing importance of mobile data, network quality is becoming an important differentiating factor for consumers," it explained. "Iliad may need time to establish brand recognition and a network of appropriate quality, which may defer the negative impact on competitive intensity."
So, while there is some space for Iliad to build a business in Italy, our take is that the country’s existing operators need not panic just yet. France in 2012 was a different world.
