French telecom dynamics

I did not take the time to comment some of the recent news on the French Telecom market, so here's a wrap up:

- Arcep published its recommendation (available here in French) to the French government of how to best allocate spectrum: 10-15 Mhz to be quickly allocated to a new entrant. Iliad (Free, one the leading ISPs) is by far the most credible new entrant despite some interest from Kertel, Bollore Telecom and Inquam Broadband. The government decided not to decide and to launch a debate in Parliament before final decision to be made in l'Elysee...A tricky political choice between a consumer-friendly approach (enabling Free to reduce prices) and operators' efficient lobbying.

- Arcep also recently calculated new long-term termination rates between 0.01 and 0.02 €/min versus 0.065 € currently. At this stage, there are no indications of when those tariffs could be implemented, but this is bad news for operators. Also, it means tariff differences when calling from a fixed line will vanish and make it all the more interesting to launch multi-play offerings.

- MVNOs still facing hurdles here with less than 5% market share. Virgin Mobile is the leading player with 900k customers reached during August 2008 (100k with sister company Breizh Mobile) and confirmed its target of 2M to be reached in 2010. Wholesale tariffs and market conditions are simply not enough attractive. Bouygues recently decided to host KPN as a MVNO. After Numericable, this decision was viewed by some skeptical players as a way to be perceived as more open to avoid a 4th 3G player. In my opinion, both issues are not and should not necessarily be opposed.

- Neuf Cegetel brand to disappear in favor of SFR. SFR to launch a new communication campaign with a new tagline: "The world is yours". The question is the extent to which this will impact acquisitions in the forthcoming quarter given 9Cegetel brand awareness in the fixed business. Bouygues Telecom will also at last launch its own broadband offering in coming weeks. This appears as a late me-too strategy but mainly aims at avoiding churn to Orange, SFR or Free broadband offerings. The viral marketing campaign to generate buzz is pretty cool.

So, at a high-level perspective, it looks like the market is beginning to be more structured with 2 main large integrated operators (Orange and SFR), a mobile operator (Bouygues) about to launching a broadband offering and a broadband operator (Free) willing to enter the mobile market, plus a bunch of small players.