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French Wireless Players Will Adapt Well To Iliad's Entrance

Mar. 19, 2012 2:12 PM ETORAN, VIVHY, BOUYF2 Comments
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By Allan C. Nichols, CFA

We are excited about Iliad's recent launch of a fourth wireless network in France, as concerns about its entry have been overhanging the market for two years. We have long said that Iliad won't be as successful as management expects and, more important, won't cause as much pain as the market anticipates to existing operators France Telecom (FTE), Vivendi (OTCPK:VIVHY), and Bouygues (OTCPK:BOUYF). We continue to believe that as a fourth entrant this late in the game, Iliad will be less successful than it predicts and will not reach the penetration rates the market expects.

Japan. Like Iliad, Softbank made big claims about disrupting the wireless market when it acquired Vodafone's business in Japan. Softbank founder Masayoshi Son is a self-made billionaire thanks to the Internet, similar to Iliad founder Xavier Niel. Son made lots of statements about cutting prices and changing the wireless world in Japan when he acquired Vodafone's Japanese business in 2006, similar to what Niel has said about Iliad and the French wireless market. However, after initially cutting prices, Softbank later raised them back as it wasn't having much success. It wasn't until Softbank gained exclusive rights to the iPhone in 2007 that it gained meaningful market share. Since exclusive handset deals are not allowed in France, Iliad can't use such a strategy to gain share.

France Is Our Favorite Wireless Market

France epitomized our favorite wireless market: It had only three operators, each with its own network, and all behaved rationally. That changed with Iliad acquiring a fourth wireless license at the end of 2009 and stating its intent to aggressively cut prices. In response, the existing operators have been reducing prices in preparation for Iliad's entrance and have launched separate lower-value brands. Iliad launched service in January with even more aggressive pricing than we expected. However, the other

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