Mobile telephony in France: a market undergoing major changes?

Dominated by three large operators, a fourth competitor which has endeavoured to change things has recently integrated the mobile phone market. In order to understand why and how the arrival of a fourth operator can change things radically, it appears necessary for us to travel back to a time when the market was divided into three.

A well-structured oligopoly

In 1996, Bouygues Telecom officially became the third operator in France and quickly set up an important innovation: the mobile package which caused a price-cutting. France Telecom and SFR respectively the first and the second French operators at that time did not appreciate the entry of such a competitor on the market. However the market was sufficiently broad although those two big competitors showed market share losses.

Although for almost ten years the oligopoly formed by France Telecom (which became Orange in 2001), SFR and Bouygues Telecom would not cease capturing market shares, in 2005 the Council of competition sentenced these three big operators to pay a €534 million fine for clinching an illicit agreement.

According to a survey carried out in 2002 by the Council of competition and the association of consumers “UFC-Que Choisir”, “the mobile phone operators had exchanged between them, from 1997 to 2003, every month, accurate and confidential figures concerning the new subscriptions they had sold during the past month, as well as the number of customers having cancelled their subscription”. The purpose of such an agreement was to peg the market shares of each operator through similar trade policies, especially regarding acquisition costs and the pricing of communications. These commercial measures, unfavourable to the consumer, had the potential to cause a decline in sales of the operator who chose to fix his prices unilaterally. Here is a striking chart proving that French prices were kept deliberately high:

The average cost per minute in mobile communications in France stood at 12,7 € cents in 2011, one of the highest cost of the world !

Finally competition?

In 2004 there appeared for the first time a new model to compete with the "pacification of the market" sought by the three major operators: The MVNO (Mobile Virtual Network Operators) that were allowed to develop competing bids among consumers. Despite numerous offers (including NRJ Mobile, Mobitel, Virgin mobile, Universal Mobile) the mobile phone market remained dominated by SFR, Orange and Bouygues Telecom. The MVNO, using the network of one of the main operators, did not challenge the existing market at all.

It was necessary to wait for the entry of “Free mobile” on the market for the oligopolistic logics to crumble. In early 2012, for the first time an operator launched the first unlimited package and Internet access(3GB) for less than 20 Euros, sold only on Internet ("SIM Only"). Since the beginning, the main purpose of “Free mobile” has been to cut prices in order to attract customers and gain market shares. One of its promises was to "reduce phone bills by € 1,000 a year”. According to recent figures (5.2 million subscribers and 44 million Euros of turnover in 2012) the new competitor is attracting more and more French households.

To conclude, in order to avoid prematurely shutting down, Orange, SFR, Bouygues Telecom and all MVNOs (Virgin Mobile, NRJ Mobile, etc.) have aligned themselves by highlighting their low cost offers. To cope with this new situation, the "historical" operators have seriously begun adjusting their policies. Bouygues Telecom and SFR have recently initiated voluntary redundancy plans of about 10% of their payroll. Orange has recently announced that it will not renew all pensions within three years. The retail networks are also set to be resized: SFR will be compelled to shut down 150 shops in three years, Orange has just renounced its distribution agreement with the Phone House to preserve its own shops. Could this trade war benefit customers? That is the question!

Gaetan.S