Optical/IP Networks

Iliad Ramps Up Broadband to the Homer

French triple-play service provider Iliad (Euronext: ILD) has continued its stellar growth in the first half of 2004, increasing its market share and continuing to post a profit (see Iliad Reports H1 Profit).

The relative newcomer is showing other European broadband upstarts how it's possible to take on a massive incumbent operator, in this case France Telecom SA (NYSE: FTE), and carve out a profitable business by unbundling lines and offering a meaty services combo.

Battling against other local loop unbundling competitors such as Groupe Cegetel, Neuf Telecom, and Telecom Italia SpA (NYSE: TI), as well as France Telecom, Iliad's broadband business, known as Free, increased its market share to 16.9 percent by the end of June, from 15 percent at the end of 2003 (see table below).

Table 1: Iliad Heads For 1 Million DSL Customers
31-Dec-02 30-Jun-03 31-Dec-03 30-Jun-04
ADSL subscribers 99,100 275,630 485,000 768,000
Unbundled subscribers 3,300 45,850 163,000 355,000
Unbundled subscribers as % of total 3.30% 16.60% 33.60% 46.20%
Residential ADSL market share 7.20% 13.30% 15% 16.80%
Source: Iliad

On June 30, Free had 768,000 DSL subscribers -- a far cry from France Telecom's 2,234,000 (see France Telecom's Mixed Sac), but a considerable leap from the 485,000 broadband users it had at the end of 2003.

That rate of growth has led Iliad to upgrade two key predictions. It now believes it will hit the 1 million broadband customer mark in the first half of 2005, instead of the end of that year, and predicts that unbundled customers will account for more than 70 percent of its DSL subscriber base by the end of June 2005, compared with the previous target of 60 percent. It currently has 355,000 unbundled customers, 46 percent of its total.

The service provider views subscriber growth as absolutely vital to its long-term future, and raised funds from an IPO earlier this year to help expand its network and ramp up its marketing (see Investors Go Mad for Free Shares). "Management believes that 2003, 2004, and 2005 are key years in the ADSL land grab," the operator noted in today's earnings statement, adding that its triple-play offer of broadband access, voice, and TV over DSL was key to attracting new customers. Free has 330,000 triple-play customers.

Naturally, the increased customer base has resulted in much higher revenues. For the first six months of the year, Iliad posted a net profit of €15.5 million ($18.7 million), up 46 percent from the previous year's €10.6 million, on revenues of €221.9 million ($267.9 million), up 77 percent from last year's €125.3 million.

But financial analysts were expecting greater profits, with the consensus at €17.8 million, according to Reuters. As a result Iliad's share price slipped by 64 cents, more than 3 percent, to €17.96. And that's not the first time the stock has taken a hit this year (see Sex Shocker Socks Stock).

Iliad is also facing an increasingly aggressive France Telecom. It is rapidly building its own triple-play offer, and is ploughing large amounts of capex into its broadband strategy (see France Telecom Launches IP Services, France Telecom Intros TV Over DSL, Europe Doubles Down on DSL, and France Telecom Taps DSL Growth).

Still, Iliad doesn't seem phased by these threats. In fact, Light Reading would like to suggest a motto for the company: If at first you don't succeed, Troy, Troy again.

— Ray Le Maistre, International News Editor, Light Reading

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