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 Wednesday, January 18, 2012

Free has gone for low prices, which it says are 2.5 times cheaper than the lowest priced offer at its rivals. Unlimited calls, SMS and MMS, including calls to 40 other countries, costs EUR 20 per month and also includes 3GB of data use. Existing broadband subscribers pay only EUR 16 per month for the same plan. No subscription contract is required, unless the customer opts for a handset such as the iPhone. A basic offer of 60 minutes and 60 SMS per month is also available for EUR 2, or free for existing Free customers. Free has said the prices are valid for only the first 3 million mobile customers (it already has almost 5 million broadband subscribers). This may mean the price will go up slightly later to drive ARPU growth.

Free is known for its simple business model, aimed at quickly building market share: a triple play costs EUR 30 per month, the hardware (Freebox) and software are largely developed in house and it is continually adding new services. This saves on most marketing costs. The model is similar to that of HKBN in Hong Kong (see our commentary 'City Telecom sets the good example for FTTH operators'): low prices, innovative services and a shift away from marketing to sales spending. HKBN does this through its call centre, which has as many employees as the rest of the company combined (1,500 each). The call centre actively upsells services, pro-actively targeting customers in order to sell more services per subscriber and increase ARPU.

The question is whether Iliad can reproduce this model on the mobile market. A low price is an important part of the strategy, and the company has clearly succeeded in that - there could very possibly be a flood of customers now that it has started taking on subscribers. It is also a fitting strategy for a newcomer, which has no 'burden' of legacy revenues such as voice/SMS to worry about losing, nor an existing mobile organisation or (GSM, UMTS) network to maintain. At Free, innovation is driven by its own development team and CPE. In addition there is an active external community developing apps for the Free platform. While Free is unlikely to take on developing its own handsets, the move into mobile may stimulate both its internal and external developers to step up the creation of new services and apps.

What remains is a newcomer that can credit itself with starting a price war. In this sense it's an interesting case study for the Netherlands, where there is a good chance a new fourth operator will also soon emerge. Dutch consumers can hope that Tele2 Netherlands and Ziggo4 (Ziggo/UPC) take Free Mobile's example close to heart. Even for the existing operators, Free Mobile is an operator to keep a close eye on in the coming quarters. 

Source: Telecom Paper.