Iliad's warrior

[ray245]

Economist

“IF I commit suicide, or if I die in a car accident in the next three months or so, you will know the threats were serious, because I am not feeling at all suicidal and I drive very slowly.” Xavier Niel, the founder of Iliad, a young broadband firm which has upended France’s internet-access market and wants to do the same for mobile telephony, says he is prepared for any attempts at intimidation. In 2004 an executive from TF1, a French television firm which was withholding its programming from Iliad’s multimedia packages, reportedly told one of Mr Niel’s colleagues: “I am going to nail you down on the wall in blood.”

He may be a bit paranoid, but Mr Niel plans to wreak financial violence on France’s dominant telecoms firms. After years of deliberation and fierce opposition from the big three—Orange, owned by the former monopoly, France Telecom; SFR, part of Vivendi, a media giant; and Bouygues Telecom, part of a conglomerate which also part-owns TF1—the government invited bids for a fourth mobile licence on August 1st. If Iliad wins, as is expected, it aims to launch a service under its brand, Free, by 2012. By halving prices and lifting limits on the length of calls, Mr Niel hopes to take a big slice of the market. If he succeeds, says Nicolas Didio of Exane BNP Paribas, a stockbroking firm, Iliad could eventually lift its operating profit by 50% while cutting profits at Orange by 10%, at SFR by 17% and at Bouygues Telecom by 23%.

Mr Niel points out that mobile-phone prices are strikingly similar in France. He says that French operators have the highest profit margins in Europe, and an iPhone costs much more in France than in Austria or Britain, for example. To preserve their comfortable position, the incumbents have lobbied using themes which resonate with politicians—that lower profits could trigger job cuts, strikes and more outsourcing to Asia. One operator is running an internal “Tout Sauf Free” project, working on ways to keep Iliad out, says Mr Niel, who with his long hair and casual clothes might seem more at home in Silicon Valley than France’s stuffy corporate scene.

Mr Niel fears ruthless tactics may be used to thwart the creation of a powerful rival to the big three. For instance, it would be cost-efficient, he says, given the billions of euros at stake, for one of them to let another bidder pay the €240m ($344m) for the fourth licence, then buy the firm. “It’s bizarre when a supposedly competitive market has to prepare itself so aggressively for a new entrant,” he remarks.

Mr Niel’s worries may in part stem from the fact that he is the ultimate outsider in French business. An entrepreneur from the age of 16, he succeeded without family money or a university education. He went into the sex business first, creating chatline services on Minitel, a data network which predated the internet. He invested in a series of sex shops and in 2004, just a few months after Iliad’s successful initial public offering, he was briefly held in prison when one of them was discovered to be a front for prostitution. In the end he was fully exonerated of having known what was going on, but was fined for receiving money from the shop. The affair has created something of a stigma around Mr Niel in top business circles, says a former colleague.

Nevertheless, his record as a consumer champion has made him popular with competition authorities, industry regulators and some politicians. The OECD reckons that consumers are indeed charged much higher mobile-telephony prices in France than the average among its 30 members. In broadband, by contrast, France has the cheapest prices, because of Iliad’s entry into the market in the early 2000s, says Taylor Reynolds, an OECD economist. In 2003, in “unbundled” regions (ones where Free could install its own broadband equipment alongside France Telecom’s infrastructure), it priced a package of broadband at 2 megabits a second, free local and national calls plus television at €29.99 a month. France Telecom’s Wanadoo, the market leader, was at the time offering broadband at half the speed, with no other features, for €39.90. Within a few years Free’s rivals had all introduced similar bundles at around the same price. Iliad also pushed its competitors to innovate, says Mr Didio; it was the first, for instance, to launch an internet-television service.
The judgment of Paris

To their credit, France’s authorities have backed Mr Niel all the way from broadband into content and now mobile telecoms. Observers wondered whether the friendship between Martin Bouygues, the boss of Bouygues Telecom’s parent, and President Nicolas Sarkozy might block a fourth licence. But those on the side of competition proved too strong to resist. France Telecom and Bouygues Telecom, which paid far more (€619m) for their mobile licences, will complain to the European Commission over what they argue is state aid to Iliad.

Conquering mobile will be harder than Iliad’s entry into broadband. The market is mature and many customers are locked into long-term contracts. Because of health worries about mobile-phone masts in France, Iliad may find it tricky to build its network. A fight has already broken out over whether it has the right to install its own antennae in roof spaces being rented by its larger rivals. One risk, says Mr Didio, is that Free will roll out its network too slowly and will have to pay expensive fees to the big three for keenly priced calls outside its network.

“In business terms, Xavier Niel is a great self-made entrepreneur alongside Bernard Arnault, François Pinault or Serge Dassault,” says a Paris-based banker who knows Iliad well. With a difference: Messrs Arnault, Pinault and Dassault made their money from old-world businesses—luxury goods, retailing and fighter jets. Mr Niel, who owns 66% of Iliad’s shares, is already France’s only information-technology billionaire, on paper at least. If he succeeds in disrupting yet another market, the establishment may finally have to acknowledge him.

It's nice to see business that actively seeks to provides better services to their customers as opposed to maximising profits for themselves.

[Stark]

Did you read? His plan is expected to massively increase his profit. It's a gamble to grab market share, not philanthropism

[ray245]

Did you read? His plan is expected to massively increase his profit. It's a gamble to grab market share, not philanthropism

Yes, just because he increase his profit margin doesn't mean he did maximise the amount of profits he can earn.

[Stark]

LOL He's breaking into a market (and apparently breaking up a nice little cartel too). He's playing corporate hardball, not looking out for the little man. That's just a happy accident.

[K. A. Pital]

Yeah. He basically has to provide lower costs to break in (pressing against his financial slack behind him and wasting "potentially accumulated" profits for the sake of destroying the opposition). That doesn't mean he's in some sort of do-good rally around France. He's a business shark who happened to run into powerful opponents in the market. What a story of human compassion that is... not.