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Orange and Free to end roaming, but too late to limit Iliad’s disruption

Orange and Free in France have issued a terse statement saying they have reached an agreement to end their roaming deal.

Everyone in the cellular industry is aware of the huge disruption caused by Iliad’s Free Mobile unit gaining its first spectrum licence in France in 2010. Regulator Arcep pushed incumbent Orange to provide a roaming agreement both inside and outside the country, which meant that Free could launch services well before it had completed building its own network.

Subsequently Free began introducing cut-price offers in France, even though it initially only had about 3,000 base stations built out. Today that figure is far closer to 12,000 – some 6,100 for 4G and 6,400 for 3G, with a far higher percentage of phone connections interacting directly with Free’s infrastructure. By comparison Orange has close to 50,000 multi-purpose base stations (2G, 3G and 4G) and this includes 81% coverage of the population with 4G services.

But 12,000 base stations are capable of catching a very large percentage of calls (around 78%) and anyway, this number has been reached over a short period of time, so if the roaming deal with Orange continues to operate until its end of life in 2020, Free has a considerable amount of time to build out more reach.

Free was the innovator which demonstrated to the world that, by using the WiFi in its 5m home gateways installed throughout France, it could offload at least 70% of internet data to its own WiFi network, greatly reducing its data usage on the Orange network (saving its roaming fees) or its own need to boost cellular capacity. Even so, it is said that it pays Orange over €1bn a year in roaming charges.

The announcement reads: “Over several months, Orange and Free Mobile (Iliad) have been engaged in discussions regarding the progressive reduction and end of the national roaming agreement between the two operators. An agreement for the end of the national roaming service was signed on 15 June 2016. This provides for the progressive limitation of services by Free Mobile, from January 2017, for its customers roaming on Orange’s network. This agreement expires at the end of 2020.” It will now need Arcep to give its blessing to the deal.

It was Arcep that initially triggered talks to end the roaming deal, just as it was instrumental in allowing it in the first place. The deal was necessary back in 2010 to make it attractive for a new entrant to enter the field – otherwise, starting from scratch, and with no 2G spectrum for wide area coverage, the economics would have been too challenging. In prior auctions, Arcep had come under criticism for making it impossible for Free to bid by not offering roaming.

But now Free is established – and has sparked a complete shake-up of the French market, including consolidation and mass job losses – Arcep has been saying since January that it wants a termination of the roaming deal with Orange, as well as an end to the sharing of 4G infrastructure between SFR and Bouygues, the second and third MNOs.

Free has grown in six years to 11.9m mobile customers or around 17% market share and says it hopes to reach 25% of the market eventually. In 2011 it triggered a savage price war that is still going on – its cheapest phone deal is €2 a month. This was a catalyst for SFR to be acquired by Numericable, in order to gain greater scale and a quad play platform.

Iliad is also looking for international expansion. It failed to acquire T-Mobile USA, but it has submitted a bid for assets in Italy, which could be divested if the proposed merger of Hutchison’s 3 Italia and VimpelCom’s Wind is accepted. Iliad had been in the running for a similar windfall in the UK, had the 3/O2 merger been allowed.

Just as it did during its ultimately unsuccessful attempt to buy Telefonica O2 UK, Hutchison 3 is trying to appease competition regulators in a deal that would reduce the number of MNOs in a country from four to three. Together with VimpelCom, it has said the merged entity would sell spectrum and about 5,000 cell towers to facilitate a new entrant.

Other preliminary bids for these putative assets are said to have been filed by Swisscom-owned Italian broadband provider Fastweb, and Caribbean operator Digicel Group, though satellite broadcaster Sky is said to have dropped out.

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