Author(s): Paolo Pescatore
Based in Paris, Iliad is an ambitious telecommunication company that uses below-market prices to compete in fixed-line and mobile services. In France, the operator has a track record of quickly scaling up, grabbing market share from even very experienced rivals. It's not the type of company existing operators would want entering their territory. But in Italy, this is what's happening.
Last week, Iliad announced that it was launching in Italy, with very keenly-priced wireless services. It plans to offer subscribers a €6 package per month (about $7), which will include 30GB of data as well as unlimited voice calls and text messages. The deal will be available to the first 1 million customers who sign up.
There's no doubt this is an attractive offer — painfully so for existing Italian mobile operators. Currently the average monthly revenue per user in Italy is about $16. Iliad is slicing prices.
The Italian wireless market is a three-horse race, with Wind Tre controlling about 35 percent of the market and Telecom Italia and Vodafone each not too far behind. It's a landscape that somewhat resembles the French market when Iliad arrived in early 2012 with its Free Mobile brand. Iliad enticed customers with cut-price deals to grab share from rivals Orange, Altice and Bouygues. At the time, Orange had 45 percent of France's wireless subscribers and Altice had more than a third. Bouygues was the third player. During the past six years, Iliad has grown to gain 22 percent of the market, challenging Altice for second place.
During the same period, the average monthly revenue per user in the French mobile market dropped from about $37 to around $22. Subscribers began getting more for less, as Iliad offered pricing that in some cases represented a third of competitors'. Such price erosion isn't surprising when cutting rates becomes the core strategy.
In Italy, a new price war appears inevitable. Overall subscriber churn in Italy is about 2.5 percent, exactly what France's overall churn rate was in 2012 when Iliad introduced its mobile service there. It's tempting to notice a pattern here.
At $7 per month (for at least 1 million customers), Iliad is launching what appears to be one of the best value-for-money deals in any developed market. To put things in perspective, Telecom Italia charges about seven times as much for a similar package, and in the US, the figure could be 10 times higher.
However, we believe Iliad will need to do more than simply provide low-cost mobile services. Other companies such as Blu, the former Italian operator, have failed in a market where people have a strong affiliation with brands they know and trust. Iliad will have to alter the strategy it deployed in its home market to adapt to the market dynamics in Italy.
Although Iliad will be able to boost awareness among customers by offering such low prices, it will need to work closely with retailers and distributors to promote its brand. We expect the operator to seek sponsorship deals to help build its position. Furthermore, all of the existing Italian providers are heavily focused on cross-selling fixed-line services to their customers, and we believe Iliad would be wise to address this segment.
The next few years could be tumultuous for Italian operators. When a disruptive player jumps into a market, there may be unexpected consequences.
For our analysis of the mobile operator landscape in the first quarter of 2018, see Quarterly Market Analysis: Mobile Operators, Europe, 1Q18.
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