Free Mobile’s entry to the French mobile market has caused an almighty outbreak of accusation and counter-accusation, leaking and selective briefing.
At stake is the future profitability of the incumbent French mobile operators, so the stakes are high. Just today, unions at SFR reported that they had been warned to expect more redundancies than previously negotiated, partly as a result of the impact that Free Mobile’s low priced tariffs are having on the industry.
The arguments have centred on two key areas – the extent and quality of Free Mobile’s network, and the viability or otherwise of the roaming agreement it has signed with Orange.
NETWORK ARGUMENTS
There have been repeated rumours, and some public accusations, that the configuration of Free Mobile’s network means it is carrying far less traffic than it could do. Free Mobile has repeatedly denied this.
Yet suspicions persist.
Mobile Europe has itself heard a senior Orange executive make two specific allegations. First, that Free’s network operations team have set antennas up with very narrow “beams” – effectivly reducing the coverage area. Second, that the base stations are configured to operate at lower than maximum power levels, again with the effect of reducing the coverage of each base station site.
There is a third, less obvious, accusation that we have heard: that Free Mobile’s SIMs are configured to instruct the handset to “ping” the network only every 30 minutes, instead of a more usual 15. This has the effect of initiating fewer cell handovers, it is alleged, and as there are far more Orange cell sites than Free Mobile sites, a Free user is likely to remain registered on Orange’s networks for longer. Of course, the reverse would also be true, once a user is registered with a Free Cell, it would stay on that cell for longer (see below for more on how Free’s network design could be affecting that).
Iliad-owned Free mobile, whose 3G network is being rolled out by Nokia Siemens Networks, has a license requirement to cover, at present, 27% of the country’s population. The French regulator ARCEP said last week that the operator has achieved 28% coverage, therefore meeting its license requirement.
Then yesterday, a leaked report from advisory body ANFR that was due to be submitted to the regulator at the end of the month, is reported to have concluded that ARCEP’s test methodologies were insufficient to assess the real life user experience of a Free mobile customer. Specifically AFNR said that by using only SIMs “locked” to Free Mobile’s network, ARCEP was missing out on the actual user experience, where users would be roaming on an off Free and Orange’s network.
Partly in response to that leak, Free Mobile released a statement hitting back at an “organised smear campaign” against it, restating that its network coverage is meeting regulatory requirement, according to pre-agreed methodologies.
Iliad’s CFO Thomas Reynaud admitted that 90% of its users’ traffic is currently handled by Orange. Free Mobile, however, insists this is a function of its poor in-building coverage (it is not due to receive 900MHz spectrum till January 2013) and of other operators’ obstructive attitudes to allowing access to sites and towers.
Other queries have been raised as to the extent of Free Mobile’s network, given that ARCEP also revealed that Free had met its coverage obligation by deploying just 735 base stations (although by the time ANFR carried out its report, that number had risen to above 900). Whether 735 or 900+, that number of sites would indicate that, in fact, Free’s cells must be, typically, quite large. Free Mobile has itself said that it has just 10 antennae covering the whole of Paris.
That could also explain why devices are roaming onto Orange sites more often. That is because a larger cell in an urban environment would reach capacity pretty quickly, and an affected device would therefore automatically seek handover to the best available cell (Orange’s). That could result in Orange seeing an unusually high number of devices attaching to its sites, without Free necessarily “manipulating” network signalling, as alleged.
ROAMING IN QUESTION
The question many would ask is, “Why would Free want to handover traffic to Orange?” It has built out its network, so surely it wants to justify its capex and operational expenditure? Well, the suspicion is that Free finds it cheaper to offload traffic to Orange than to carry it itself, and also that, as we have seen, Free’s network simply can’t carry any significant volume of traffic.
Orange signed a national roaming contract with Free mobile that has been criticised by other operators. SFR’s CEO Frank Esser told Le Monde that Orange’s willingness to sign a roaming deal that will earn it €1 billion in wholesale revenues in six years had enabled Free mobile’s entrance to the market. So why did Orange sign its roaming agreement? That’s a murky area. Some Orange executives feel that their hands were tied by the regulator’s determination to bring a fourth player to the market. “Free is Arcep’s baby,” one executive told us. The terms of the deal have not been exposed publicly, although Orange says that ARCEP knows what they are, and is happy with them. And it insists it is offering Free Mobile only normal market rates.
Orange provided Mobile Europe with this statement: “The pricing specified in our contract are (sic) at market prices and completely coherent with the prices that we offer our MVNOs. It is certainly not through the national roaming prices that Free has found the financial means to put its current offers on the market.
“The traffic generated by Free customers, for the moment and to the extent that we can measure it, is significant. In terms of volume it is considerably higher than the estimates that both us and Free had anticipated. Technically we are dealing with this situation. Clearly, there will be financial consequences of this, probably in the form of additional revenues beyond the amount that was initially anticipated.”
So that is a reiteration from Orange itself that it makes money on the roaming deal, despite what the other operators allege.
Just yesterday, Free lobbed another grenade into the roaming fight by saying that those operators that have criticised Orange for the deal it struck had themselves offered Free “far more competitive” terms than Orange. “These operators who were eager to conclude this contract with Free Mobile now condemn the principle of roaming,” a Free Mobile statement said.
In any case, Free Mobile said, in the long term it needs to have its network up and running. “Roaming is a transient need. The profitability of this undertaking can be achieved only by deploying the network,” its statement said.
TERMINATION RATE BET?
Finally, there is the issue of Free Mobile taking advantage of financial mechanisms to subsidise its cheap packages. Some in the incumbent operators also feel that Free is banking on something known as asynchronous repricocity in termination rates to subsidise the incredibly low rates it is offering its callers. The mobile termination rate in France is currently 1.5 euro cents a minute. That will be lowered to 1 cent per minute from July and finally to 0.8 cent on Jan 1, 2013.
But Free mobile (along with some MVNOs) is excepted from these rates, and is able to charge rates of 2.4 cents a minute currently, and 1.1 cents per minute min from Jan 1, 2013. This differential will last until January 2014, until the final rate settles at 0.8 cents per minute for all operators.
That means that if an Orange, SFR or Bouygues user, say, calls a Free mobile customer, Free will be able to charge Orange more for terminating that call than Orange could charge Free for calls terminated on its network.
It’s not an unusual mechanism to encourage new entrants, however, and is one that was used to foster Bouyges’ introduction to the market when it entered as a new number three
Meanwhile, Iliad has now said it will take legal action against “anyone who makes disparaging comments about the veracity of its coverage or its investments.” Will that be enough to silence the doubters – in private and public? It seems unlikely.