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Summary:

After little more than six months of operation, Xavier Niel’s French mobile operator Free.fr seems to be having a serious impact on the local market. Not only is it stealing millions of customers from bigger rivals, but it’s forcing them to radically alter their price plans too.

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The January launch of Free.fr — a disruptive new French carrier — was expected to send shivers through the country’s mobile industry. The basic idea behind the company, masterminded by serial entrepreneur Xavier Niel, is that it can radically reduce mobile costs by offloading traffic over Wi-Fi where possible.

It’s a simple, audacious concept that’s technically hard to execute — but so far it seems to have been pretty successful, with the business opening up a network of 4 million hotspots around big French cities in April and putting on a record 2.6 million subscribers in its first quarter of operations.

And while rivals may suggest that it’s just a temporary blip as users change provider and then return, the reality is that they’re hurting. Those 2.6 million users have to come from somewhere, especially when you consider that subscriber numbers across Europe are flat or declining.

More evidence of the impact that Free is having came on Wednesday as Orange, France’s biggest network, announced that its own low-cost packages would be massively altered to bring them into line with Free’s offering.

Huge price cuts from Orange

From Thursday, users of its “Sosh” branded mobile internet services can now get 3GB of data each month for €19.90 — that’s $24.80 — almost exactly the same as Free offers users. Sosh is not really a mainstream Orange product, and it’s only sold online, but it was launched last year as a spoiler product to Free, so it’s definitely worth using as a benchmark.

La Tribune reports that this is a precipitous fall from when the Sosh packages were first launched last year — and that Orange has been forced to take a more aggressive approach:

Compared to the initial offers unveiled in September 2011, the price drop is impressive: Sosh then proposed 1GB and unlimited for €39.90. It is now offering three times more data for less than 37 percent of the original price. […] Meanwhile, Sosh will stop selling its package at €14.90 (2 hours of calls and 1GB) and replace it with a subscription to €19.90 euros including unlimited calls 24 hours a day, becoming the new standard in the market, and 2 GB of data, which will be better able to compete with Free Mobile package.

The irony is that Orange is, in part, responsible for Free’s rise. The two companies have an agreement that lets Free buy airtime on Orange’s 3G network, which has caused consternation at the France Telecom-owned business. Statistics suggest that around 88 percent of Free.fr traffic is going across Orange towers and just 12 percent of users are actually connecting to a Free antenna.

You could take this as proof that the pain of losing 615,000 customers to Free is somewhat mitigated — but the truth is that it has Orange worked up. More detail should become apparent later this week when Free announces its second quarter numbers.

  1. Free.fr has been disrupting the industry for some years now. Everybody is trying to align on their tripple play (now quad play) offering.
    This also shows how companies such as the one in the US have the monopoly and in consequence have really high priced offering.
    Regarding free.fr, you get 28Mpbs, Fixed phone and Internet TV for 30euros / month. Most phones calls toward the US are also free. Just alone, in the US, on AT&T for instance, I pay $50 for 6Mbps, $20 for basic phone….
    On their mobile offering, you get unlimited calls, unlimited SMS, up to 3Gb data for only 20euros / month ($15 if already a free.fr subscriber on their internet offering). This includes free calls toward lots of countries such as US, Camada…

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  2. Xavier Niel is also a partner at Golan Telecom which launched in Israel on May with a similar pricing plan, forcing the like of Orange to half prices. The main difference is that the Israeli play does not involve traffic overloading over Wi-Fi. See: http://www.globes.co.il/serveen/globes/docview.asp?did=1000748566&fid=1725

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  3. “it can radically reduce mobile costs by offloading traffic over Wi-Fi where possible.”

    Your analysis is wrong.

    1st, data offloaded over WiFi on the ISP set-top-boxes is unlimited and not taken from the 3GB allowance.
    2nd, while Free the 2nd French ISP and you can find a client with an accessible WiFi network at almost every corner, WiFi can not be used when you are moving (walking or commuting).
    3rd, WiFi offloaded to the ISP DSL network is capped at 1Mbps while you can reach 6Mbps or more on the UMTS network.

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  4. Jean-Marc Desperrier Sunday, August 26, 2012

    @Awax : But still, this makes me think of the discussion with one of my colleague about how if he found that option *very* convenient, he just put the Free SIM inside his iPhone, and voilà, the offloading to Wi-Fi (using EAP-SIM protocol) just worked. And he now frequently uses WiFi instead of data, maybe because the network has some growing pains currently, and UMTS is extremely very far from it’s theoretical max .
    Also when walking, the phone easily reconnects to another network, and it’s quite transparent. Commuting yes that doesn’t work so well.

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    1. @JMDesperrier (is it a French forum now ? :)) : indeed EAP-SIM is a very convenient way to use WiFi when available but WiFi handshake is very slow and it kills the phone connection to constantly switch from cellular to WiFi connection (for example, on the iPhone, many apps have a different behavior). Simply walk down a street and you’ll barely have more than a few seconds of continuous connection. Every time, connections are reseted and you have to restart your download from scratch.

      However, the point here is to understand : is WiFi a convenient ADDITIONAL service (which it is) ? or is WiFi key to Free pricing structure, allowing it to undercut its competitor ?
      My opinion is that WiFi is the former: the icing on the cake. Free is a disruptor in the markets it enters and it won’t enter a market it cannot turn on it head (see DSL where they entered and then exited until conditions allowed it to propose a truly innovative approach).

      IMHO, Free disruptive approach is to abandon the subsidy and offer a plan linked to its actual cost (voice and SMS are dirt chip and data is the actual source of cost). Simple and efficient.

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