The mere mention of Iliad's name is enough to send many telecom investors running for the hills. Telecom Italia's share price fell 2.65% in Milan Tuesday after the French company was reported to have said it hopes to capture a quarter of the Italian mobile market after launching services there in late 2017 or early 2018. (See Eurobites: CityFibre Soars Following Hint of Potential Sale.)
But the stock remains well above its level last summer, when Iliad (Euronext: ILD) landed the deal that will take it into Italy. Despite some wariness, Telecom Italia (TIM) shareholders do not expect Iliad to wreak havoc in Italy as it has done in France.
Founded and majority owned by French billionaire Xavier Niel, Iliad already provides broadband and mobile services in its domestic market, where longer-established players have blamed its aggressive pricing tactics for subscriber defections and earnings setbacks. It now looks intent on pursuing the same strategy in Italy, where it last year acquired assets from merging players Wind Telecomunicazioni SpA and 3 Italia .
Regulatory authorities forced those companies into a deal with a new entrant as a condition of their tie-up, thereby preventing Italy from becoming a less competitive three-player mobile market. But concern has grown about the impact that Iliad could eventually have on Telecom Italia and other established service providers.
Such fears were fueled earlier today when Reuters -- citing sources familiar with the French upstart's plans -- reported that Iliad was aiming to capture about a tenth of the market in the next three years "through very aggressive offers," and ultimately had its eye on a 25% share. Spoiling for another fight, Niel is previously said to have described Italy's mobile operators as the "most hated" in Europe.
Yet, as Light Reading argued in September last year, Iliad will struggle to carry its French revolution into Italy. (See Italian Fear of Iliad May Be Overblown.)
For one thing, the arrival of Iliad in France's mobile market in early 2012 did not occur because of or in parallel with sector consolidation. France gained another service provider as a result of Iliad's move. By contrast, Italy will have the same number of mobile operators this time next year as it had this time last year.
Moreover, when Iliad barged into France, mobile prices in the country were among the highest in the European Union (EU). Data from the European Commission indicates that a typical postpaid customer in France was forking out roughly €44.95 ($47.87, at today's exchange rate) in 2010, against an average EU bill of €24 ($26). That gave Iliad enormous scope for savage price cuts.
And how prices have since fallen. Former state-owned monopoly Orange saw monthly average revenue per user (ARPU) fall from €31 ($33) in the last quarter of 2011, just before Iliad's entry, to as little as €22.30 ($23.75) in the same period last year.
In Italy, by contrast, Iliad may already have missed the action. At Telecom Italia, ARPU fell from €19.70 ($20.98) in 2010 to as little as €12.10 ($12.89) in 2015, before edging up to about €12.40 ($13.21) last year. Launching a new price war when rates are already at rock bottom will not be easy.
In France, Iliad also had its own fixed-line broadband network on which to fall back when it entered the mobile sector. Besides giving it some kind of backhaul capability, that has allowed Iliad to market bundles of fixed and mobile services while rivals do the same. In Italy, it will need to forge agreements with other players to develop such a "multiplay" proposition.
Italy's operators should also be more prepared for an Iliad assault than France's were in 2012. Having seen the damage that Iliad has caused in its domestic market, Telecom Italia, Vodafone Italy and the merging Wind and 3 Italia will have no excuses for inaction on the marketing front. All three players are reported to have said they are taking steps in advance of Iliad's arrival.
Telecom Italia's share price sank 11% on July 6 last year, when news first surfaced that Iliad would enter Italy. Since then it has risen by about 25%, even taking into account today's fall. Investors are right to be wary, but Niel's sabre rattling does not have them unnerved.
— Iain Morris, , News Editor, Light Reading