{"id":2531,"date":"2015-12-07T19:16:07","date_gmt":"2015-12-08T00:16:07","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/iliad-s-a-the-story-behind-frances-telecommunications-maverick\/"},"modified":"2015-12-08T15:05:49","modified_gmt":"2015-12-08T20:05:49","slug":"iliad-s-a-the-story-behind-frances-telecommunications-maverick","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/iliad-s-a-the-story-behind-frances-telecommunications-maverick\/","title":{"rendered":"Iliad S.A.: the story behind France\u2019s telecommunications maverick"},"content":{"rendered":"

How much would you expect to pay for a cell\u00a0phone plan, with unlimited talk, SMS , data and no roaming charges when traveling within Canada, the U.S. ,or the European Union? Probably over $100 with a two-year contract. In France, it costs less than $25 per month\u00a0\u00a0(\u20ac19.99<\/a>, sales tax included) with\u00a0no commitment.\u00a0Free Mobile<\/em>, a subsidiary of French Telecommunication Group\u00a0Iliad<\/em>\u00a0is responsible for this amazing deal.<\/p>\n

\"Picture1\"<\/p>\n

Free Mobile<\/em>\u00a0entered the market in January 2012.\u00a0The\u00a0three\u00a0existing\u00a0competitors were offering similar packages for more than twice the price. Less than four years in, it\u00a0counts over\u00a011 million subscribers\u00a0<\/a>(16% market share). The business is profitable and accounts for\u00a040% of revenue<\/a>.<\/p>\n

This was not\u00a0Iliad’s<\/em>\u00a0first attempt at disrupting an established and high margin market. In the early 2000’s\u00a0it had\u00a0“broken the cosy status quo of French telecoms and created commercial havoc”<\/a>\u00a0with it’s\u00a0broadband and landline offerings through it’s subsidiary\u00a0Free<\/em>. So how did they do it?\u00a0The answer lies in what I believe are the four pillars that drive Iliad’s commercial and operational strategy: Innovation, Lean Structure, Simplicity, and Attractive Prices.<\/p>\n

Innovation<\/u><\/strong><\/p>\n

Iliad\u2019s broadband business relies heavily on internal design and R&D of products and seeks\u00a0technological edge over competition. In 2000, they developed their own end-user home equipment that would deliver internet, phone and TV with only one device. Xavier Neil, Group CEO and founder said in an\u00a0interview<\/a>: \u201cWe felt sure that it must already exist somewhere in the world, and so we went to the United States and elsewhere, but we didn\u2019t find it anywhere else, and so we decided to make it ourselves. We invented the triple play.\u201d It was rolled out in 2002 and it would take 4 years for the \u201cfreebox\u201d to be matched by rivals. The latest version of the box keeps adding\u00a0additional features at no cost to the customer such as a NAS drive, Android TV or Blue ray player.<\/p>\n

\n
\n
\"The<\/a><\/dt>\n
The latest Freebox with Android TV<\/dd>\n<\/dl>\n<\/div>\n

Today, Free Mobile<\/em> is innovative in terms of its commercial offers and distribution channels. It launched 1,600 automatic sim card dispenser machines in the past 18 months available in post offices and newsstands.<\/p>\n

\n
\n
\"Self<\/a><\/dt>\n
Self service kiosk in a convenience store<\/dd>\n<\/dl>\n<\/div>\n

Lean structure<\/u><\/strong><\/p>\n

In a 2009\u00a0interview<\/a>,\u00a0Iliad’s<\/em>\u00a0CEO and founder Xavier Neil reflecting on his company’s success 10 year into\u00a0its foray into the broadband market said:\u00a0Keeping the team small and nimble (“commando spirit”) with no hierarchy and powered by the thrill of being able to give 100%, take initiative and have a real impact […] was key.\u00a0<\/em><\/p>\n

Throughout the years, the company has stayed very lean despite its growth. This was a key advantage compared to incumbent competitors. Partially state owned\u00a0Orange <\/em>remains\u00a0bloated following\u00a0years of monopoly and high margins.<\/em><\/p>\n

While competitors had to hire many\u00a0salespersons and spend money on ads,\u00a0Free<\/em>\u00a0“created an offering that you could not ignore”. Costs per customer acquisition remains\u00a0lower than competition.\u00a0Free<\/em>\u00a0was also first in relocating it\u2019s customer support call center in French speaking Morocco.<\/p>\n

In recent years,\u00a0Free mobile<\/em>\u00a0followed the same path. It initially sold its sim cards exclusively online thereby\u00a0avoiding the costly retail infrastructure or paying commissions to\u00a0distributors. The introduction of the self-service kiosks mentioned above helped broaden distribution while keeping costs low.\u00a0Free Mobile<\/em>\u00a0leveraged on its sister company\u00a0Free\u2019s<\/em>\u00a0Wi-Fi hotspot network (the world\u2019s largest) as every triple-play modem was a hotpost;\u00a0thanks to the EAP-SIM protocol, smartphones could connect seamlessly to those hotspots<\/a>. By running most of its traffic over these, it managed to\u00a0reduce its cost of delivery and its need for cellular capacity.<\/p>\n

Simplicity<\/u><\/strong><\/p>\n

Free<\/em>\u00a0tries to emulate Apple’s mantra in simplicity of use and limited number of products. It’s\u00a0Freebox<\/em>\u00a0comes in two models. It is plug and play and does not require an installation manual for the setup of TV\/Wifi\/Phone.<\/p>\n

Iliad has\u00a0very straightforward offers: it has two price points for both its broadband and\u00a0mobile plans. There are no add-ons:\u00a0what the competition sells as add-ons is included in Free<\/em>‘s high priced packages. This simplicity allows for complete price transparency.<\/p>\n

Attractive prices<\/u><\/strong><\/p>\n

French consumers pay some of the world\u2019s lowest broadband rates (cf\u00a0OECD data<\/a>) thanks to Iliad and it’s lean structure. Prior to Iliad’s foray into broadband,\u00a0France’s telecommunication market was a quasi monopoly with few\u00a0players and\u00a0enormous margins.\u00a0Competitors had no choice but to lower their prices and align with\u00a0Free<\/em>, even if it meant lower margins and potentially lower future infrastructure investments.<\/p>\n

\n
\n
\"OECD<\/a><\/dt>\n
OECD<\/a>\u00a0Fixed Broadband basket Med 5 : 100 GB \/ month. 102.400 Mb\/s and above, Sept. 2014<\/dd>\n<\/dl>\n<\/div>\n

When Iliad moved into the cellphone market, it replicated the operational model it had built in broadband and sent prices plunging, forcing the established operators to match its discount prices.<\/p>\n

Looking ahead<\/strong><\/p>\n

Free Mobile<\/em> faces numerous challenges to maintain it’s\u00a0lean structure. It\u00a0benefits from a \u00a0roaming deal with Orange until 2017 but will need to finish creating a nationwide mobile network of its own as French regulation requires universal coverage. Analysts say it will have to\u00a0invest heavily in spectrum auctions scheduled for 2016 to do so. Does it make sense to fund these massive Capex requirements with\u00a0it’s mature Broadband business which generates strong positive cashflow? They will need to maintain their\u00a0\u00a0innovation edge and lean structure to continue growing market share and reach a size that warrants\u00a0these investments.<\/p>\n

Other sources:<\/em><\/p>\n

[1] Google could be a great partner for Iliad in its quest for T-Mobile:<\/p>\n

http:\/\/www.theregister.co.uk\/2014\/09\/01\/google_would_be_logical_partner_for_iliad_in_its_quest_for_tmobile<\/a><\/p>\n

[2]\u00a0L\u2019ARCEP retient la candidature de Free Mobile:<\/p>\n

http:\/\/www.arcep.fr\/index.php?id=8571&tx_gsactualite_pi1%5Buid%5D=1234&cHash=3da45f613f<\/a><\/p>\n

[3] Wikipedia –\u00a0Extensible Authentication Protocol (EAP)<\/p>\n

https:\/\/en.wikipedia.org\/wiki\/Extensible_Authentication_Protocol<\/a><\/p>\n

[4] Iliad Financial reports and Management comments:<\/p>\n

http:\/\/www.iliad.fr\/finances\/2015\/slideshow_2014_120315.pdf<\/a><\/p>\n

http:\/\/www.iliad.fr\/finances\/2015\/Annexes_Consos_2014_120315_Eng.pdf<\/a><\/p>\n

http:\/\/www.iliad.fr\/finances\/2015\/Annexes_Consos_S1_2015_310815_Eng.pdf<\/a><\/p>\n

http:\/\/www.iliad.fr\/finances\/2015\/Rapport_Gestion_2014_120315.pdf<\/a><\/p>\n

http:\/\/www.iliad.fr\/finances\/2015\/Rapport_Gestion_S1_2015_310815_Eng.pdf<\/a><\/p>\n

http:\/\/www.iliad.fr\/finances\/2015\/slideshow_S1_2015_310815.pdf<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Iliad enabled the French to slash their internet and phone bills by two after entering both of these markets. 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