France's Bouygues, Iliad Gain From Bigger Rivals' Pain

French operators Bouygues Telecom and Iliad have seen their earnings boosted by subscriber growth in the first six months of the year, capitalizing on losses suffered by bigger rivals Orange and Numericable-SFR.

Iliad (Euronext: ILD) has been unstoppable since entering the mobile market in early 2012, when it triggered a price war that has badly hurt its rivals, while Bouygues Telecom attributed its recent progress to a new and improved strategy.

A part of the wider Bouygues empire, the operator flagged a 6% year-on-year increase in revenues in the first half, to €2.29 billion ($2.55 billion), and swung to an operating profit of €38 million ($42 million) from a loss of €54 million ($60 million) a year earlier.

Bouygues picked up another 543,000 mobile customers over the six-month period, giving it 12.4 million mobile subscribers in total, while the proportion of customers using 4G services rose to 58%, from 42% in June last year.

Figure 1: Customer Numbers in France (Millions) Source: Operators. Note: Numericable-SFR does not break out 4G subscriber numbers.

There were also gains in the fixed-line market, which Bouygues has been targeting as bigger rivals promote quad-play bundles of fixed-voice, broadband, TV and mobile services to French consumers.

Having captured another 122,000 fixed-line customers in the first half, Bouygues now serves more than 2.9 million subscribers. Around 412,000 of those customers are using broadband services of more than 30 Mbit/s, claimed the operator, while 70,000 are on even higher-speed fiber-to-the-home (FTTH) connections.

Want to know more about 4G LTE? Check out our dedicated 4G LTE content channel here on Light Reading.

Iliad, meanwhile, saw its own revenues rise by a comparable 6.3%, to €2.3 billion ($2.6 billion), over the same period, with net profit up 17%, to €190.4 million ($212.2 million).

Founded by French billionaire Xavier Niel, the operator gained another 400,000 mobile customers in the first six months, giving it about 12.1 million in total. Around 4.7 million of those are now using 4G services, according to Iliad, up from 2.4 million in June last year.

In the fixed-line market, Iliad's gains were almost identical to those of Bouygues, coming in at 123,000 net additions. But they leave Iliad with nearly 6.3 million fixed-line subscribers overall.

Iliad drew attention to the "fiercely competitive environment" in the fixed-line broadband market, with average revenue per user dropping to €33.90 ($37.78) per month, from €34.50 ($38.45) in the year-earlier period.

The operator has an ambitious target of growing its FTTH customer base to 4 million "sockets" by the end of this year, from 3.1 million at the end of June, and is aiming for 9 million FTTH connections by the end of 2018.

It is also building out its own 4G network as it looks to wean itself off a "roaming" agreement with market leader Orange (NYSE: FTE) that is set to expire in 2020, following regulatory moves in June.

Iliad believes it can further boost its profitability by developing its own infrastructure and ceasing to make payments to Orange.

Excluding spectrum fees, capital expenditure rose 1.5% in the first half, to €622 million ($693 million), representing about 27% of Iliad's revenues.

Nevertheless, the operator's balance-sheet position looks solid. Net debts amounted to about €1.4 billion ($1.56 billion) in June -- just 0.9 times what Iliad made in EBITDA last year.

The results from Bouygues and Iliad stand in sharp contrast to those from Numericable-SFR , France's second-biggest operator, which lost around 656,000 mobile customers in the first six months of the year, excluding machine-to-machine connections, to leave it with about 16.6 million subscribers.

Owned by cable group Altice, Numericable-SFR has been criticized for its relentless focus on cost cutting, which analysts have blamed for recent customer defections. (See Altice Stock Soars After Profits Grow.)

Excluding gains in the machine-to-machine communications market, market leader Orange lost 191,000 mobile customers in the first half, finishing with about 24.4 million in total.

Iliad's share price was up 5.6% in Paris in mid-morning trading, while that of Bouygues was up 3.5%.

— Iain Morris, , News Editor, Light Reading