How far could a French billionaire shake up Britain's telecoms market?
Xavier Niel, the founder of low-cost operator Iliad, is looking to enter Britain, according to the Financial Times. He wants to take advantage of the disposals Hutchison will have to make in order to win for antitrust approval of its 10.5 billion-pound ($15 billion) bid for larger rival Telefonica's 02.
The move is far from certain, and it's likely to be difficult for Niel to reproduce the success Iliad has had in France. The British market is more crowded, margins are lower and he may not have the same regulatory support that he enjoys at home.
Iliad's track record in France is impressive: a decade ago, the company pioneered triple-play bundles of TV, broadband and fixed telephony in France. It undercut competitors, forcing them to cut prices, and then continuously added features like catch-up TV while keeping the price unchanged.
In 2012, again with the support of regulators, Iliad crashed the cosy three-operator oligopoly in France's mobile market, introducing cut price contracts and offering more generous allotments of voice, texts, and data than competitors.
Prices fell 30 percent -- hitting rivals' profits and forcing two of them, Bouygues Telecom and SFR, to cut jobs. It also spurred Orange and Bouygues to deploy faster 4G and fibre broadband technologies to differentiate themselves from the upstart.
The result: Iliad has almost 16 percent of the mobile market by subscribers after Orange, Numericable-SFR and Bouygues, and is third-placed in broadband with 23 percent, according to Bloomberg Intelligence.
Iliad spent about 2.5 billion euros ($2.7 billion) for the first five years of its French mobile drive, building the network, buying spectrum and marketing the product, according to estimates by Oddo. In Britain, it might have to invest as much as 3 billion pounds, the analysts say.
Iliad could afford that because it has low debt: 1.1 billion euros at the end of 2014, slightly less than its 1.2 billion euros of adjusted Ebitda that year, according to Bloomberg data. By comparison, Orange's net debt was about two-and-a-half times Ebitda.
Iliad could even afford to bid for Talk Talk, a low cost broadband provider that would allow it to round out its offering in Britain. The company's market value has sunk to less than 2 billion pounds after it was hit by a cyber attack last year.
Money is no guarantee of success. Britain's telecommunications market is in a period of extreme tumult. The lines between companies that sell fixed-telephony, broadband, mobile, and pay-TV are dissolving, mirroring what's already happened in the rest of Europe.
BT, the country's biggest broadband provider, has just bought EE, the biggest mobile provider. Pay-TV behemoth Sky will later this year start offering mobile services. Vodafone, which once only focused on mobile, has started offering broadband and plans to add TV soon Five companies will be vying to entice companies with bundled offers.
France has four integrated operators, and that could soon reduce to three; a deal is pending to take Italy to three; and Germany is already there.
The number of providers means margins in Britain's mobile industry are already low relative to the continent, hovering in the mid-20s compared with mid-to-high 30 percent range in Italy, Germany, and France.
Hutchison, backed by Hong Kong billionaire Li Ka-Shing, may rightly balk at selling assets to Niel. It has other options for remedies, such as selling spectrum or offering more favorable wholesale rental terms to Sky, Talk Talk, or cable company Virgin Media.
These options might well be more attractive than letting Europe's most aggressive telecommunications entrepreneur enter the British market.
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