* Free Mobile strategy shift targets high-end customers
* Pressure mounts on Orange, SFR and Bouygues
* Rivals will be forced to respond - Espirito Santo
By Leila Abboud
PARIS, Dec 17 French mobile telecoms operator
Iliad will lease high-end smartphones to subscribers of
its low-cost Free Mobile packages in a long-awaited attack on
its larger rivals' most profitable business.
The move is a major departure from the no-frills plans that
have enabled the upstart operator to grab an 11 percent market
share since the Free Mobile service launched in January 2012.
Its monthly packages, starting at only 2 euros ($2.75) for
the most basic deal, required customers to buy their phones
while doing away with the long contracts demanded by rivals.
The deals sparked customer defections from Orange,
Vivendi's SFR and Bouygues Telecom, but Iliad
needed to expand its appeal to higher-margin customers used to
receiving help buying smartphones.
The latest aggressively priced approach allows subscribers
on its 15.99 euro and 19.99 euro plans to rent Samsung's
Galaxy S4 for 12 euros a month over two years with
an initial payment of 49 euros, or Apple's iPhone 5S
for 12 euros a month and 99 euros up front. Customers must
return the phone after two years.
Iliad's packages are different from the sales model used by
its competitors, in which customers who sign two-year contracts
of at least 20 euros a month receive an upfront subsidy worth
300 euros or more on a smartphone.
"The success of Free's offer will depend on whether French
people take to the system of leasing a phone," said Stephan
Beyazian, an analyst at Raymond James. "One thing is clear,
though; on price, the packages are very attractive."
For example, Iliad's lease offer represents a discount of
about 40 percent on the cost of buying an iPhone 5S and then
taking out a Free Mobile monthly plan.
Analysts at Espirito Santo described Iliad's latest
initiative as a "very aggressive strategy" and predicted a
further degradation in its competitors' profitability.
"We believe this should represent another disruptive factor
in the French telco market and force Iliad's rivals to respond
in order to reduce the risk of additional market share losses,"
Iliad shares were down 0.7 percent at 169.95 euros by
1209GMT. Orange was down 0.3 percent and Bouygues down 1
percent, while Vivendi shares were up by 0.8 percent. The French
blue-chip index was trading down 0.6 percent.
It has been a tumultuous few weeks in the French telecoms
sector, touched off by Iliad's announcement that it would add
superfast mobile speeds, known as 4G, to its offers without
charging more, effectively ending rivals' attempts to boost
prices after spending billions to build the new networks.
Bouygues, which has the broadest 4G coverage in the country,
responded with a complete revamp of its tariffs including the
addition of 4G speeds on its own low-cost contract-free B&You
brand. Orange on Tuesday said that its no-frills brand, known as
Sosh, would offer 4G for 24.99 euros a month.
That sparked a war of words on Twitter between Iliad's
billionaire founder Xavier Niel and French Industry Minister
Arnaud Montebourg, who accused the entrepreneur of destroying
jobs in the telecoms sector.
Since Free Mobile joined the market less than two years ago,
mobile prices in France fell by 11 percent in 2012 and are
expected to drop by a further 8 to 10 percent this year.