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Iliad Profits From Triple Play

Anyone who invested in alternative French operator Iliad (Euronext: ILD) when it floated on the Paris exchange at €16.30 in January 2004 has the right to feel pretty smug today. (See Investors Go Mad for Free Shares.)

The company, which derives 80 percent of its revenues from triple-play service provider Free , saw its share price rise €4.20, more than 7 percent, to €61.90 this morning after it published its 2005 financial results. (See Iliad Reports 2005.)

For a company taking on Orange (NYSE: FTE) in the incumbent's own back yard, a 280 percent rise in the value of the stock is more than impressive.

Here's the reason for the healthy share price. Year-on-year revenues are up 47 percent to €724.2 million ($871 million), while net income is up 69 percent to €68.9 million ($82.8 million), higher than the €61.3 million analysts polled by Reuters were, on average, expecting.

Iliad's 2005 EPS (earnings per share) is €1.26 ($1.51), above the analyst consensus figure of €1.12 ($1.35). The company is paying a dividend of €0.20 ($0.24).

For the record, the other 20 percent of Iliad's revenues also comes from telecom services -- hosting, traditional voice resale, calling cards, and public wireless LAN access.

Iliad's numbers make for good reading, but it's the strategy behind the balance sheet that tells the real story, as, in many cases, Iliad has developed its own broadband access equipment -- DSLAMs and home routers/gateways -- rather than wait for the right equipment from a vendor supplier.

It has also been at the forefront of local loop unbundling in France, installing its own DSLAMs in France Telecom's central office. To date, it has its equipment installed in 675 of the incumbent's facilities, and has the key to the door of another 1,000 exchanges. That strategy costs money, though: In 2005 Iliad spent €207.7 million ($249 million), nearly 29 percent of its revenues, on capital expenditure.

But that decision to take control of its technology developments, as well as its marketing and business strategies, has resulted in massive leaps in subscriber additions, revenues, and profits.

Triple-play attraction
Iliad ended 2005 with 1,595,000 ADSL customers, an increase of 531,000, or 50 percent, from the 1,064,000 broadband subscribers it had on December 31, 2004.

At the end of 2005, Iliad had a 17.9 percent market share of the French DSL market, second only to France Telecom's ISP, Wanadoo SA , which had 49.5 percent of France's 8.9 million DSL users. And it's not as if Wanadoo were Iliad's only rival. At the end of 2005, Neuf Cegetel Group (Euronext: NEUF) had a 13.2 percent market share, with nearly 1.2 million broadband customers, while Telecom Italia (TIM) had 546,000 DSL users for a 6.1 percent market share, and T-Online International AG 's Club Internet service had a 4.4 percent share with 392,000 broadband customers. (See French Carriers Announce Merger, Italians Prep Big French DSL Rollout, and T-Online France Uses Cirpack for VOIP.) Of its near 1.6 million broadband connections, 1.12 million are unbundled lines, giving it total control over the services it can deliver, and the management of those services.

That's important, because Iliad believes its service innovation, along with an attractive price, is key to its growth and customer retention. The company claims an independent study shows that fewer than 8 percent of Free customers intend to change their broadband provider, while its rivals fare much worse, with nearly half of Wanadoo's broadband customers planning to defect.

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digits 12/5/2012 | 4:01:48 AM
re: Iliad Profits From Triple Play So, here is a triple play service provider that, in order to get ahead of the game, has bypassed the traditional vendor supply chain (apart from the VOIP gear) and, with inhouse developed DSL, home gateway, set-top box and IPTV middleware technology, built a profitable and growing position in arguably the most hostile market in Europe.

Any lessons to be learned here, by carriers and vendors alike?
flyingsausage 12/5/2012 | 4:01:43 AM
re: Iliad Profits From Triple Play >> in order to get ahead of the game, has bypassed the traditional vendor supply chain

What makes Free ahead of the game is not a inhouse DSL or home gateway, but a rich & cheap service offering (free Phone calls + good broadband with some TV).

TV is even not such critical, Free quality of TV can be sometimes bad, and most subscribers still rely on air TV. Actually, Free network is not really designed for intensive TV usage.

Being the first provider in france offering almost Free voice service with unlimited calls + good DSL for the price of DSL only at Wanadoo/FT is really the winning factor.
digits 12/5/2012 | 4:01:41 AM
re: Iliad Profits From Triple Play Flyingsausage

I agree - my point is whether Free could have offered those services as quickly, at the same price, and to the levels and specifications it wanted, if it hadn't developed its own technology that it knew so well and could manage, upgrade, etc..
I wonder if whether it could have been offered such a rich service at a decent price if it had relied on the traditional vendors and integrators. Just a thought...

Ray
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