Iliad: venturing fourth
Epic tale of telecoms consolidation will not end well for groups that fail to compete
Xavier Niel employs a classic approach to the telecoms markets: discount aggressively and swipe market share. Over the past five years his low-tariff mobile operator Iliad has built a permanent outpost in France. EU Competition Commissioner Margrethe Vestager likely approves — having four operators in France has worked. That might be bad news for rivals in Italy, the next country to play host both to Iliad and the four-operator model.
Tuesday’s second-half results revealed how far Iliad has advanced. Although earnings before interest, tax, depreciation and amortisation only just beat expectations, the top line has held up well. Ebitda margin at 35.5 hit a new high, up over one percentage point from 2015. More customers have migrated to higher priced mobile contracts at the same time as average revenues from broadband customers have increased. Though the company claims it has free cash flow for the first time since 2013, Iliad’s calculation omits the downpayment for new radio spectrum. Still, net debt is less than its ebitda, so leverage is no concern.
Iliad fights for market share in France with incumbent Orange, Bouygues Telecom and SFR. Unusually for Europe, three of the four are run by individuals, so any combinations would depend on these tricky personalities getting on. Analysts have long predicted that pricing pressure would force consolidation in the French market, but recent results from Bouygues and Orange do not suggest they are struggling. Iliad’s results imply that SFR, which has results later this week, might be the one losing out.
Mr Niel will soon take his quest to Italy. Ms Vestager only allowed last year’s combination of Hutchison’s 3 and Wind there if a fourth operator could enter. In stepped Mr Niel with his Parisian swagger. His Italian unit will be named Free. It will not be quite that cheap, but clearly the epic tale of consolidation in European telecoms will not end well for mobile operators that cannot compete on price.