Thursday, 20 December 2007

France's Quad-Play Competition

France has led Europe in flat rate broadband pricing and the development of IPTV. Now the French retail market promises to rapidly become a test bed for fixed mobile convergence. The country’s second largest mobile operator, SFR, is set to buy Neuf Cegetel outright. The deal is unsurprising in that Neuf Cegetel’s directors have spent recent months banging the drum for consolidation between fixed and mobile operators. In addition SFR, which is 54 percent and 46 percent owned by Vivendi and Vodafone respectively, already owns 40.5 percent of Neuf Cegetel. (The Louis Dreyfus Group has reached an agreement to sell its 29.5 percent stake in Neuf Cegetel to SFR, which will seek to buy the remaining publicly owned shares of Neuf Cegetel.) And the two companies already work closely together: SFR provides MVNO access to Neuf Cegetel, which in turn manages SFR’s DSL access network. Yet the merged company will combine dense national fixed and mobile network coverage with a large customer base and a small workforce relative to Orange, giving it every chance to make life very uncomfortable for the incumbent.
The new company should be able to develop low-cost, high volume FMC products to rival Orange’s Unik, which currently has approximately 600,000 customers. But SFR won’t only be getting fixed mobile convergence for its money (the buy-out out of the 49.5 percent of shares SFR does not own is valued at 4.4 billion Euros in the French press). SFR’s parent company, Vivendi, also owns French pay TV giant, Canal +, giving the group the combined weight to take on Orange in IPTV and mobile TV content services. And with SFR behind it, Neuf Cegetel will be able to pump more money into its FTTH build.
None of this is good news for Orange, but it also raises questions over the future of the few remaining French telcos. In the last eighteen months Neuf Cegetel has overtaken Iliad’s Free, which can claim much of the credit for both initially creating France’s low cost broadband market and driving today’s FTTH investment. Now Free looks small-scale and isolated, as do France’s third mobile operator, Bouygues Telecom and the cable company, Numericable. Change, however, is afoot at Numericable, of which the Carlyle group has bought a third for one billion Euros, according to Les Echos. The question now is whether Numericable or Free teams up with Bouygues -- and if the odd fixed man out will finally but that unsold fourth 3G licence.

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