Leila Abboud is a Bloomberg Gadfly columnist covering technology. She previously worked for Reuters and the Wall Street Journal.

When Xavier Niel was building low-cost French telecoms group Iliad SA, his competitors accused him of being a free-rider who merely resold capacity rented on their networks. That critique, while valid a few years ago, is no longer apt.

The billionaire has turned into a big spender on fiber and mobile networks. Iliad has been building mobile infrastructure in France from scratch since 2012 and has grabbed an 18 percent market share. It still relies on bigger rival Orange SA to carry much of its mobile traffic, but that dependence is lessening as the network nears completion.

Young Gun
Iliad spends more on network investments as a percent of sales than larger peers
Source: Bloomberg, company reports

This shift away from an asset-light model has implications, of course. The total returns on Iliad shares have handily beaten the Stoxx 600 index in the past decade, delivering an annualized increase of 12.9 percent (with dividends reinvested), compared to 3.7 percent for the index. Yet the company has also only generated positive free cash flow in four of the past 13 years.

Iliad rarely generates positive free cash flow because it spends heavily on networks
Source: Bloomberg calculations, company reports
Iliad disclosed consolidated FCF for 2010-2016. Bloomberg calculated it for the earlier years based on public filings and the definition provided by the company.

That's very different from larger, more mature telecoms operators that throw off lots of cash and often use it to pay attractive dividends. Of course, skinny dividends won't matter to Iliad investors when it's growing so quickly.

Revenue last year rose 7 percent to 4.7 billion euros ($5 billion) and Ebitda increased 12.5 percent to 1.7 billion euros. Its mobile service in France, which didn't exist five years ago, brings in nearly half of revenue. This is a performance any European or U.S. telecoms boss would drool over.

But the growth carries a price. Iliad's capital expenditure hit its highest level last year, totaling 1.3 billion euros, and another 472 million euros was spent on mobile spectrum. Iliad is spending to close the quality gap of its French mobile network to rivals Orange and Bouygues SA and to connect more homes to fiber broadband.

To try to ease concerns on how much it's having to fork out, Iliad has offered a little more clarity. It said it would spend 1.4-1.5 billion euros per year on capex in 2017 and 2018, excluding spectrum. It even set a target related to cash generation for the first time, pledging to create 1 billion euros in Ebitda minus capital expenditures from 2020. Much of the promised cash boost will come from lower fees paid to Orange once Iliad has more of its own capacity.

Watch out though: these promises apply only to France. Details are more scarce on the cost of Niel's foray into Italian telecoms. Iliad says it can break even in Italy on an Ebitda level with less than 10 percent market share. On Tuesday, it predicted 100 million euros of Italian capex this year, which will "go up from there".

Iliad's expansion in France has meant more network investment, and its coming move to Italy will add to the bill
Source: Bloomberg, company reports
2017-18 forecasts are for France only.

One item in Italy has already turned out more costly than expected. Iliad bought some mobile spectrum from Hutchison and Vimpelcom's Wind for 450 million euros. But it's just disclosed that it'll have to pay another 240 million euros to the Italian government to renew the spectrum licences.

Such an outlay won't make or break the Italian adventure, which will be paid for largely by taking on more debt. Still, Italy's a very different place to France. Mobile prices there are already pretty low, while many people aren't stuck on the kind of long-term contracts that the French had to suffer before Niel tore up the market. 

Iliad has won fans as a rare growth story in European telecoms. Italy will show whether its increased maturity comes at a cost.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Leila Abboud in Paris at

To contact the editor responsible for this story:
James Boxell at