NEWSMAKER-Xavier Niel: France's telecom rebel grows up

* Free prepares to launch mobile service with lower prices

* Awkward outsider joins French business elite

By Leila Abboud and Marie Mawad

Dec 12 (Reuters) - When Xavier Niel flips the switch to activate France's fourth mobile phone network, it will complete his transformation from computer hacker selling adult chatrooms on a primitive Internet model into a billionaire pillar of the French establishment.

It took Niel, an outsider unconnected to the powerful French elite, more than five years and two applications to win the right to operate France's next mobile network.

His company, Iliad, had already become a force to be reckoned with by bringing cheap high-speed broadband to the French masses as the market opened to competition in the 1990s.

So Niel's politically influential rivals like incumbent France Telecom and Vivendi's SFR fought to prevent him from bring his low-cost, high-tech formula to their mobile turf.

Even President Nicolas Sarkozy weighed in, deriding Niel as the 'peepshow guy' for his colourful past and questioning whether France really needed another operator.

But the 44 year-old entrepreneur persevered, fended off lawsuits and lobbying, and is set to join their mobile ranks.

Iliad, which markets its offers under the brand Free, is expected to launch its mobile service over Christmas or early next year. Niel has pledged to drive down prices in the market by up to a half -- just as his competitors had feared.

He won't be hogging the limelight however. Described by colleagues, friends, and rivals as brilliant, awkward and loyal to a small circle of allies, the long-haired, jeans-wearing executive is also deeply solitary.

In the crucial period when Iliad was lobbying the French telecoms regulator about opening the market to competition, he earned the nickname the "invisible man".

Niel hired a photogenic young former investment banker to be CEO and the company's public face with markets and regulators, while he himself preferred to work on the tech side.

From behind the scenes, Niel set about simplifying a thicket of complicated offers, cutting broadband prices and improving technology and services. Renting space on lines belonging to France Telecom, Niel sold bundles of Internet, fixed calls, and TV for 29.99 euros a month. Free was a consumer sensation.

As rivals scrambled to cut prices and match services such as free international calls, Niel built Iliad into a company with over 5,000 employees and annual revenue of 2 billion euros.

THE NIEL METHOD

Niel is betting he can repeat his success in mobile. Much as he did in broadband, he has hinted that he will upend the traditional model of mobile operators and offer few stores, no handset subsidies, and no contracts locking in customers.

He is likely to have reached his strategy by consensus, an approach that has so far been central to his way of working.

The key decision to price Free's signature broadband, TV and fixed calls bundle at the aggressive price of 29.99 euros a month was taken only after weeks of debate internally, despite Niel's strong conviction from the start that he was right.

"Xavier rarely imposes a decision by fiat, even though he could," said a person who knows him. "He wanted to convince us that his approach was right and get everyone on board."

Niel's working method centres on email because he dislikes meetings. He emails a half-dozen key executives with a question on some strategic issue, such as pricing, and lets it circulate for a few days until a consensus emerges among the responses.

An auto-didact who dropped out of university -- de rigeur for Silicon Valley entrepreneurs but almost unheard of among successful businessmen in France -- Niel is famously frugal.

His 75 percent stake in Iliad may be worth more than 14.5 billion euros but one employee says he still has to ask for Niel's approval each time he buys 50 euros worth of pens.

With such a close eye on his own resources, Niel takes pleasure in tormenting his deep-pocketed competitors.

"I ride my bike to work and their CEOs drive around in chauffeured cars with a team of PR people," he quipped at a lunch with reporters in September.

"When we said we'd enter mobile in 2008, we promised to divide prices by half. Since then our competitors have lowered prices by 10 percent-we still have a lot of room!"

BUILT FROM SCRATCH

Raised in a middle-class Paris suburb, Niel became an amateur computer hacker. At 20, he'd dropped out of maths courses preparing France's brightest for top universities and started an adult chat and dating service on Minitel, rudimentary networked computers that pre-dated the Internet in France.

About seven years later, he used that money to start Iliad and there too, a hacker spirit ruled. Niel asked engineers to build telecom hardware for Iliad's networks because off-the-shelf gear was too expensive and didn't have the functionality he wanted, such as delivering TV over telephone lines.

"When I was hired as CFO, there was not a single normal PC in the office," said Olivier Rosenfeld, Free's former chief financial officer. "They were all assembled from bits and pieces of old machines and were running open source software."

At night, Niel would surf E-Bay to bid on telecom gear being sold by U.S. companies that went bust when the Internet bubble burst, sending off $10,000 payments for routers and devices that his engineers would then re-purpose.

Niel's achievements -- his is now the 12th largest fortune behind the likes of Bernard Arnault of LVMH and the Bettencourt clan behind L'Oreal -- are rare in a country where few start-ups reach critical mass and top groups are family dynasties like Hermes or state-owned giants like EDF.

Despite this, Neil has at times been his own worst enemy: only six months after Iliad's high-flying stock market debut in 2004, he was jailed for a month on charges that sex shops in which he was a partial investor had encouraged prostitution.

He was cleared of the prostitution charges but paid a 250,000 euro fine and got a suspended sentence of 2 years for misappropriation of funds. He emerged fiercely protective of his privacy and ultra-driven to succeed, say people who know him.

"People are always watching and waiting for him to fail," said Jacques-Antoine Granjon, CEO of on-line retailer Vente-Privee and close friend. "But when you look at what he's been able to do in a country like France that can be hostile to outsiders, it shows he is an incredible entrepreneur."

POWER PLAYER

In the past few years, Niel has taken on a more public role and seems to be emerging as a power player in French business.

At a glitzy launch of Free's new set-top box designed by Philippe Starck, Niel walked the stage and talked up his new product in the style of Apple's Steve Jobs. He has also bought a mansion in Paris' most exclusive community, where he lives with his partner and their two young sons alongside neighbours like wealthy industrialist Vincent Bollore.

In another change, he has started speaking out more broadly about tech policy issues in France, arguing against President Sarkozy's law that requires broadband companies like Free to cut off subscribers if they download pirated content. He is also looking abroad, bidding to buy France Telecom's Swiss business for up to 2 billion euros.

Niel has also looked for ways to give back to the community, though in typically idiosyncratic fashion he spends his money to address industry problems rather than via traditional charities.

He teamed up with two entrepreneur friends to found a school for Internet careers in Paris after noticing a dearth of qualified recruits for Iliad. He started a seed fund that backs start-ups to fill a gap left by wary French banks.

A news junkie, Niel has also invested in media, continuing a long tradition of French industrialists owning the country's biggest newspapers. In 2010, he helped save newspaper Le Monde from bankruptcy, and for Rosenfeld, it is that ownership stake that reveals something deeper about Niel's character.

"Many see only the first level of Xavier: the geek, the genius, the successful entrepreneur," he said. "But there is another level: he has a real thirst, a desire for recognition by society. And today he has achieved that." (Editing by Sophie Walker)