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2014-08-07 05:45:16
Aug 6th 2014, 16:42 by M.S. and T.B. | PARIS AND TOKYO
NEWCOMERS are battering at the gates of America s telecoms market hoping
T-Mobile US, the fourth-largest mobile- phone operator, will let them in.
Iliad, the French firm that made public on July 31st its bid for control of
T-Mobile, is now sitting a little prettier. Though T-Mobile had turned up its
nose at Iliad s proposed price, a rumoured richer offer by Sprint, America s
third-largest carrier and 80% owned by Softbank of Japan, was then withdrawn,
on competition worries. Following a moment for reflection, in which T-Mobile
ponders the waste of almost a year in takeover talks with Sprint, a new phase
of negotiations with Iliad and perhaps other bidders will no doubt begin. Dish
Network Corp, whose chairman has expressed an interest before in hooking up his
satellite television network with a wireless operator, could well be among
other suitors.
America attracts disruptive outsiders like Iliad s founder and main shareholder
Xavier Niel (pictured, left) and Softbank s founder and chief executive
Masayoshi Son both upstart innovators who have transformed their industries at
home because they are familiar with the scenario, if not the scale. Fat margins
on products too complicated to compare in mature markets dominated by former
monopolies leave room for price-cutting and innovation, both have proven (see
chart). Mobile charges in America are far higher than they are in France now,
though Japan s still have a way to go.
Iliad is the more radical of the two. In 2002 its subsidiary Free launched a
simple, fast and cheap broadband service. Before long competitors were forced
to advertise the same price, and France moved from one of the most expensive
broadband markets in Europe to one of the cheapest. In 2012 Free brought in
low-cost mobile telephony. The novelty went beyond price: Free allows free
phone calls to over 100 countries and does not lock users into long-term
contracts by throwing in subsidised handsets that take ages to amortise.
In two and a half years, Free has picked up 13% of the mobile market. Rudolf
van der Berg, an economist at the OECD, says he can think of no other mobile
startup in a mature European market that achieved even a 5% share in less than
five years. Free s business model, he says, is cheapish for consumers but it is
cheap mainly for Iliad. Billing costs are minimal because the offers are
simple. Advertising is mainly by word of mouth, fanned by the press. Reducing
administrative time and costs leaves room for price-cutting and innovation.
Mr Son first made headlines during the dotcom boom. Then, in 2001, in a joint
venture with Yahoo to beat the Japanese incumbent, NTT, he handed out free DSL
modems and offered broadband at half-price. In 2006 he bought Vodafone Japan
and gave customers more choice, letting them pay more for their phones and less
on the monthly tariff, for example. Then Softbank introduced the iPhone in 2008
into a market dominated by local handsets. Its popularity now explains a fifth
of Japan s trade deficit.
Mr Son showed his risk-taking appetite when last year he paid $21.6 billion for
Sprint, laden with debt and losing customers, to crack the American market. He
then pushed hard to combine Sprint with T-Mobile, reinvigorated under a new
chief executive and cutting prices agressively. It looks now as if Mr Son bit
off more than he could chew.
Mr Niel and Mr Son have characteristics in common, says Robin Bienenstock, who
follows the telecoms industry. They are both outsiders, which may have
sharpened their enthusiasm for attacking established players. Mr Niel grew up
in a working-class suburb of Paris, did not go to university a rarity in the
upper echelons of French business and counts some seamy episodes in his early
career. Mr Son is an ethnic Korean, educated in America. Both are successful
entrepreneurs: Mr Niel is now France s eighth-richest man and the older Mr Son
is Japan s richest, according to the Forbes rich list. Both are tech geeks.
Iliad s $15 billion cash bid for bigger T-Mobile US is now the only one on the
table. Could it work? The claim that the merger would produce 10 billion
($13.4 billion) in synergies raises eyebrows. But it is not from combining
back-office systems or piling far-flung customers onto a common network that
Iliad expects savings. Simply, Mr Niel thinks he knows how to run a
mobile-phone company better than most, and that he has the track record to
prove it.
Whether or not the bid comes off, Iliad will have lost little. Mr Niel has
shown his French rivals that he has other options if they keep turning down
chances to consolidate at home. Vivendi, a conglomerate, signalled its exit
from the industry on August 5th when it said it had received a $9 billion offer
from Telef nica of Spain for its Brazilian telecoms operation, GVT. But it is
selling France s second-biggest domestic operator, SFR, to a cable company.
As for Mr Niel himself, he has done his personal reputation no harm. No sooner
had Iliad s bid for T-Mobile US been revealed than Arnaud Montebourg, France s
economy minister and not always a fan, tweeted Bravo to Xavier Niel... France
wishes him luck! From wide boy to national treasure in less than a decade.