Xavier Niel, the most aggressive telecom entrepreneur in Europe, is officially on his way to Italy.
Thursday's decision by Europe's top competition watchdog, Margrethe Vestager, to approve the merger of Hutchison and VimpelCom's Wind on condition they sell some assets will allow Niel's Iliad to get a toehold as Italy's fourth mobile operator.
If they are to avoid getting gored, the country's telecoms companies should study how France's operators responded to Iliad's low-cost offerings and guerrilla marketing tactics.
First a caveat: the French and the Italian markets are quite different, so Niel can't simply replicate his French model. In Italy, few people sign up for long-term contracts in return for a cheaper smartphone. Instead, 70 percent of the market is on pay-as-you-go.
Nevertheless, Telecom Italia, Vodafone, and the newly formed Hutchison-Wind shouldn't be complacent. In four years, Iliad's Free brand has grabbed about 17 percent of the mobile market in France and 12 million customers. Prices have tumbled, and the country' three other operators are all less profitable.
Based on my experience watching this play out in France, here is some advice for the Italian operators:
- Give customers bigger data allowances
In France, Iliad started with only two offerings: a pared-down one at 2 euros a month and one at 19.99 euros for unlimited calling and texts.
Niel hit hard with the amount of mobile data he gave to customers at these very low prices: originally, he offered 20 gigabytes a month and in 2015 increased that to 50 gigabytes.
You'd have to binge on a lot of Netflix or download an eternity of music to hit those limits.
Iliad's mobile data is still cheaper than competitors -- even after they reduced some of their prices.
- Start a separate low-cost brand
Bouygues Telecom, the number three operator in France, was the first to do this by creating the cheap and cheerful B&You brand ahead of Iliad's arrival. Available only online, the brand allowed Bouygues to pitch itself to younger, budget-conscious consumers. The move was mimicked by Orange, which created the Sosh brand, and SFR with Red.
One pitfall to avoid: make sure the new brand has a separate executive team. That means existing managers won't be able to starve it of attention or resources. SFR struggled with this.
- Get creative on bundling and content
One of Orange's most successful moves to counter Iliad turned out to be all-inclusive bundles of mobile, fixed calling, broadband and television.
Orange's Open package locked customers into two-year contracts in return for a discount. Once people's mobile subscriptions are linked to their land line at home, they're often reluctant to switch.
Such quad-play packages don't really exist in Italy -- in part because of the country's creaky broadband networks but also because market-leader Telecom Italia had no interest in cannibalizing itself.
Also explore using content -- everything from television to streaming music -- so as to differentiate from Iliad's pared down offers. Telecom Italia's CEO Flavio Cattaneo looks like he understands this: hours after Thursday's announcement he said he was interested in signing exclusive content deals.
- Cut costs
This is probably the most important point. Start trimming expenses on everything now because your revenue is going to take a hit.
In France, SFR and Bouygues were both forced to slash employees after Iliad's arrival. Orange would have done so too if it wasn't constrained by state ownership.
With its bloated cost structure, Telecom Italia has the most to do here, and has already announced a plan to cut 1.6 billion euros in annual costs by 2018.
Let the games begin.
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