Nearly two months ago, Free Mobile became the fourth mobile service provider in France. They offered two simple plans for costumers to choose from; they offered no smartphones at discounted prices; they didn’t even bother with paid advertising. And yet they brought the major mobile companies to their knees, and changed the telecom game completely.
Since the 1990s, the mobile service industry had been dominated by three major providers: Orange, SFR, and Bouygues. As demand for mobile services increased and the technology unfolded, these three companies grew into corporate giants, each of them figuring among France’s 25 Wealthiest Corporations. To make themselves even more comfortable during this period of growth, the Big 3 started secretly sharing market and customer data, as well as coördinating price increases, which effectively stabilized their respective market shares and guaranteed continued profits at the consumer’s expense. It was also illegal. The three were fined a total of 534 million euros in 2005 for screwing us so hard that they broke the law.
Cut to 2011. The Big 3 are still under constant watch of the Autorité de régulation des communications électroniques et des postes (ARCEP), the governing body of the telecommunications industry, though this does nothing to prevent them from “ripping us off,” and treating us as “cash-cows,” according to Free’s charismatic founder, Xavier Niel.
Niel, the CEO of Iliad, the parent company of Free, is an ex-pornographer and something of an amateur showman – he owns half of both Le Monde and the rights to the song “My Way.” But he does know how to shake up the technology market – his Free internet provider took off in 2002 (when Orange’s Wanadoo service was fined 10.35 million euros and forced to offer non-abusive wholesale prices of their network,) and his conception of the Freebox, a model combining internet, phone, and television services, has become the industry standard in France. Customers of Free became great champions of his revolutionary ideas (and prices), starting websites proselytizing the rogue company’s values and came to be known as Freenauts. With a nationwide networks of both wireless internet and support, one can only wonder what took so long?
First of all, the cost of the license is enormous. Free ended up paying 240 million euros just for the right to establish its network, a price so steep that it has, until now, effectively precluded any real competition. The sum is arrived at by auction, though when Free easily won the bidding in 2007, the governing body decided to restrict the payment options, removing the possibility of Free paying in installments, and annulling the bid. When a new bidding process opened in 2009, Free again won it handily at 206 million euros, though Orange’s France Telecom rattled its cage loudly enough for the price again to be raised.
But the prohibitive price of the license wasn’t the only hurdle Free had to surmount. French politicians harrumphed about Free, the way they harrumph about anything changing in any way. Éric Besson, France’s Minister of Industry, Energy and the Digital economy, claimed early on that Free was paying an unfairly low price for its licence, a statement he retracted after being disproved. He’s currently insisting that the ARCEP reinspect the entirety of Free’s network, even though it was validated as recently as mid-December, 2011. (It might also be worth noting that Mr. Besson was managing director of Vivendi Foundation from 1996 to 2001. Vivendi owns SFR.)
On January 25th, Niel was also called in to a hearing in front of the Commission of Economic Affairs, where he was made to defend his business and explain the principles of competition to the commission’s deputies (they were concerned about how Free would affect the other three providers.) The Freenauts’ sites are abuzz with discussion about how the same government struggling to reverse the plummeting buying power and quality of life of its citizens was seeming to balk at a chance of moving in the right direction.
Free also took a hit in the established media. Dominique Seux of France Inter radio announced that the mobile market in France is already over-saturated, insinuating there was no place for another competitor. Nor was anything nice said on TF1 or Canal+, which are owned by Bouygues and Vivendi (SFR) respectively.
It was Niel’s chief competitors who were, in the end, the most ridiculously outspoken. “The deployment of a fourth 3G mobile network is physically impossible,” claimed Martin Bouygues, CEO of his namesake company. “We can’t add any more antennas, it’s unfeasible. [A fourth network] seems to me a bit of a fantasy.” When the ARCEP finally agreed to sell the license to Free, Bouygues responded the he “didn’t buy a château to have gypsies sleep on the lawn.” Jean-Bernard Lévy, President of Vivendi (SFR) added that “it’s the patrimony of the state that we’re selling off.” Lévy also assured the nation that “a fourth operator, if it has national coverage, will not be able to lower rates,” and that “there is already a price war: they are already among the lowest in Europe.”
While the British pay on average 274 euros per year for their mobile service and the Germans manage to pay only 181 euros, the French pay a whopping 392 euros per year, effectively the most expensive service in Europe.
Consumer rights group CLCV (la Confédération de la Consommation, du Logement et du Cadre de Vie) estimates that the major operators work with a Gross Profit Margin of 30 to 40%, and the website of the Financial Times places these in them in the 50-55% range. To put this in perspective, the technology world’s luxury-chouchou Apple only turns a 45% margin, while the established name brand cheese Président’s listing comes in at less than 15%. It’s normal that a company charges more than just to cover its costs, but the example of the telecommunications industry is extreme – Wired Magazine reminds us that it costs a carrier as much to send an sms as it does not to send it. (Yes, an sms costs them nothing.)
So where does all this money go? The Big 3 offer an army of boutiques, which are focused on the sale of new contracts, and refer customer inquiries and complaints to telephone hot-lines. They also all sponsor major sports teams and competitions – every call you make on Bouygues’ network helps pay for their Tour de France team, while on SFR you help fund the Olympique Lyonnais. But by far the most diabolical use of your money is in their misleading advertising. A year ago, when the Value-Added Tax (TVA) increased for the major operators, they didn’t hesitate to pass the higher prices on to their customers. This rise in fees, however, gave the customers the right to cancel their contracts under the Loi Chatel, without even having to return their iPhones, etc., which many had received for as little as one euro with the contract. When the cancellations started coming in, the companies made a grand about-face: they changed their policies and agreed to swallow the small TVA hike, keeping their customers locked into their suffocating contracts, and then took out countless full-page ads explaining that this was an act of pure selflessness and done out of consideration for their customers. No one made a fuss about this, in part because all the details of these legal mechanisms are hidden away in nebulous contracts and fine print. Until now France has had no alternative.
The basic plan with Free costs 24 euros. A year. That gives you a couple text messages a day and a few calls per week, if you go over that, it’s not that much more expensive (any sms after the 60 included is only 0.01 euro – the others average 10x that.) If you want the unlimited plan (unlimited calls to 40+ countries/unlimited text messages/data) that’s under 20 euros per month. (The data usage does has a limit, though it’s 3x greater than the ‘unlimited’ plans of the others.) If you’re a subscriber to Freebox, their internet service, the plans are even cheaper. And there’s no contract to sign. These are the clearest, simplest, and least expensive plans in France.
In spite of all the resistance, from both the self-protective competition and the foot-dragging state, in the two months since its introduction over 1.5 million people have been wooed by the alternative to the extortionate practices of the three major companies and have signed up for Free Mobile. Orange, SFR, and Bouygues are losing thousands of customers each day, but that’s understandable seeing as they’ve been screwing us for so long. While they’ve already started lowering their prices, they remain on average more than twice as expensive as what Free charges for comparable usage.
It’s taken a while, but the revolution has finally begun.