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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price, a rumoured richer offer by Sprint, America s third-largest carrier and 80% owned by Softbank of Japan, was then withdrawn, on competition worries.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.