Vivendi counters new French mobile rival with price cuts

PARIS Thu Jan 12, 2012 12:26pm EST

PARIS Jan 12 (Reuters) - Vivendi's French mobile phone service company SFR is cutting prices on several of its offers to compete with new market entrant Iliad, while rival operator Bouygues promised similar price cuts next week.

France Telecom has already moved to reduce prices on its low-cost brand Sosh, which is aimed at young, web-savvy urbanites in response to Iliad's Free Mobile offers launched on Tuesday.

Even after the cuts, however, none of the larger operators has matched Free Mobile's main offer of unlimited calls to France and most of Europe and the United States, unlimited texts, and 3 gigabytes of mobile data for 19.99 euros per month.

Instead France's incumbent mobile operators are pursuing a strategy so far of limiting their price cuts to budget options, which are sold only online and do not come with subsidised phones on long-term contracts.

Such deals, known as SIM-only offers, account for only a small sliver of the overall French market.

However, Frederic Boulan, telecoms analyst at Nomura, questioned whether France's operators would be able to hold this line for long, and predicted that Free Mobile's aggressive prices would soon force them to lower prices on traditional subscription contracts.

"The price gap between 'brick and mortar' and Internet pricing is not sustainable, in our view, and the new Internet norm with unlimited voice/text at 20-25 euros (a month) is likely to spill over to all tariff structures," Boulan said in a note.

"We expect further repricing in the weeks to come, and we remain cautious on the French mobile industry and France Telecom in particular."

Shares in Vivendi were down 0.1 percent, France Telecom down 1 percent, while Iliad was down 1.8 percent at the close. Bouygues shares were up 0.3 percent amid a largely flat French market. (Reporting by Leila Abboud; Editing by Greg Mahlich)

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