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Free Disrupts Telecom Market in France

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This is a story about how I got an iPhone, and how the company that made my decision possible is shaking up the telecommunications landscape in France. And while most of you probably don’t live in France, it’s worth paying attention to how a relatively small company can cause the price of services to drop precipitously. It happened here, and it’s probably only a matter of time before it happens elsewhere.

Four months ago, I bought an iPhone. I know I’m late to the party, but I never had the need for a mobile phone before, at least not very often. I work at home, and I lived, for a dozen years, in a village in the French Alps. In January, I moved to a larger town (about 40,000 people), and having a basic cell phone — one that just makes and receives phone calls — wasn’t enough. Even though I still work at home, it’s useful to have GPS and maps, Internet access when I’m shopping, and all the other bells and whistles that an iPhone offers.

Of course, iOS isn’t new to me; I’ve long owned various models of the iPod touch and the iPad, but the main reason I never bought an iPhone was the cost. For a long time, the cheapest standard smartphone contract you could get here in France was €45 per month (around $60). For that, you received 2 hours of call time during the week, and unlimited calls on evenings and weekends. (In Europe, as in much of the rest of the world, you use your plan minutes only to make outgoing calls, not to receive incoming calls, so the amount of time in phone plans is much less than in the United States. But, calling a cell phone from a landline costs more.) Data was limited as well. This was from Orange, what the French call the “historic” telephone company, created after the privatization of France Télécom, the former state-owned monopoly.

After the telecom market opened to competition, two other companies got licenses to operate cell phone networks, and their prices were essentially the same. Later, Orange created a second brand, called Sosh, which sold unlimited contracts for €40 (~$53) per month. In this case “unlimited” meant unlimited calling, but data was capped at 2 GB. Other companies also created low-cost brands, selling plans for around the same price.

But on 10 January 2012 — coincidentally, the day I moved — a new player entered the cell phone game, slashing prices and boosting competition in a market that had stagnated for years. Free — that’s the name of the company — started offering an unlimited (voice) cell phone plan, with 3 GB of data and throttling above that level, for a mere €20 (~$26). Not only was that price low, but if you got your home Internet access from Free — and, coincidentally again, I had just changed from Orange to Free for my Internet access — you paid only €16 per month. Oh, and that price includes tethering. I immediately ordered an iPhone. (As you might expect, these plans didn’t also subsidize the cost of the iPhone 4S; the 16 GB model I bought cost €629 — in the range of a loaded iPad at roughly $832. On the plus side, the Free plan has no commitment, so I can consider reselling the iPhone 4S when the next iPhone comes out.)

If you don’t make many calls, you can pay even less: a 1-hour plan, with 60 text messages, costs a mere €2 ($2.64) per month. (Additional minutes cost €0.05 and additional text messages are €0.01 each.) No data plan is included, but you can sign up for a separate €3 plan that includes 20 MB per month, enough to get basic usage while out and about. And if you’re a Free Internet subscriber, Free’s name suddenly matches their price for this limited, voice-only plan: €0. No other operator offers a basic cell phone plan at such a low price. For comparison, I previously had a plan for €7 per month that included no calls; I was billed €0.42 per minute for calls I made. But since I didn’t make many calls, it was a good deal.

Free’s limited plan is awfully compelling for many people. If you don’t place many calls and can use Wi-Fi for most of your connectivity, you could be quite satisfied with this type of plan.

Free and France’s Ma Bell -- So why have cell phone plans long been so expensive in France, as well as in the rest of Europe? For a long time, there was no competition. France Télécom had the advantage of owning the network — both the backbone and the last mile — and even once other companies were allowed to offer telephone, and, later, Internet services, France Télécom was noted for making it difficult for customers to switch. In 2003, the company — in the form of subsidiary Wanadoo Interactive — was convicted by the European Commission for anti-competitive practices.

As years went by, the three companies that offered cell phone service seemed to have a tacit agreement to avoid stepping on each others’ toes. Prices remained more or less the same for individual users, though businesses could negotiate lower rates.

In 1999, Free was born. Under the direction of the flamboyant Xavier Niel, who sees himself as a sort of modern-day Robin Hood, the company offered lower-priced Internet access, and, in 2002, added ADSL access in certain parts of France. While Free was not able to compete everywhere — unbundled telecom service was offered initially only in a handful of major cities, and even now doesn’t cover the entire country — the company now has about 23 percent market share.

Free provides an interesting service. Like all ISPs in France, they offer a “triple play” plan that includes ADSL access, TV over ADSL, and fixed telephony for a single price, currently €38 (~$50) per month. This includes the company’s integrated hardware device, the Freebox Revolution, which boasts an industrial design by superstar designer Philippe Starck.

The Freebox Revolution is a fascinating two-part device that is a multi-function networking and Internet tool. The first part, the Freebox Server, offers the following:

  • ADSL modem and gigabit optical fiber port
  • 4-port Ethernet/Wi-Fi gateway
  • File server and NAS, with a 250 GB hard drive and a USB port for additional storage
  • DECT telephone base station

DECT is a cordless phone standard that’s nearly universal outside of North America. You can pair a DECT telephone directly with the Freebox, so you don’t need a separate DECT base station. The Freebox Server provides unlimited fixed phone calls within France, to both landlines and cell phones, as well as to 100 other countries.

The second part of the device is the Freebox Player, which connects to the Server via a powerline network connection (the Freeplug, two of which are included with the Freebox). The Player connects to a TV and/or stereo, providing the following:

  • TV via ADSL. You can also connect a coaxial cable to the Player to route digital terrestrial TV signals through it.
  • Streaming audio and video from the Freebox Server
  • DVR features, recording TV from the Player to the Server’s hard disk
  • AirPlay from iTunes or an iOS device
  • Optical drive that can read CDs, DVDs, and Blu-ray discs
  • HDMI and S/PDIF outputs to connect to TVs and stereos

While you get nearly 200 TV channels with the Internet subscription (though the majority are in languages that I don’t understand), you can also add premium channels on a month-to-month basis.

When I add up all of this — Internet, unlimited fixed phone calls, TV, and my iPhone — I pay a total of €54 (~$71) per month. That seems entirely reasonable.

No Such Thing as a Free Lunch -- Free is not perfect. When they first launched their cell phone offering, it was as hard to sign up as it was to order a third-generation iPad on launch day. Site responsiveness improved the following day, but some people — notably TidBITS Senior Editor Joe Kissell, who lives in Paris — had some bumps in the road getting contracts started. There have been days when phone service was inaccessible for some, perhaps related to the fact that Free does not yet have its own network, and buys access from Orange. The company is working on setting up its own cell phone towers, but this will take time.

While I have had brief Internet outages since I switched, being able to use tethering through my iPhone has enabled me to continue working. On the plus side, Free’s technicians are generally very competent, which isn’t universally true. When I had a business account with Orange, the technicians who provided my dedicated support were fine, but home users calling into Orange’s tech support line would often be greeted by surly, unqualified phone center reps. Obviously, my experience with Free is limited, and I’ve certainly heard anecdotal stories from people who have received poor support, but of the many people I know using Free’s services, most have been extremely happy.

Free Disruption -- Free’s low-priced cell phone offering was designed to shake up a market that seemed to align prices tacitly. And it certainly worked; all the cell phone carriers have lowered their prices in response to Free, and the “low cost” brands that many of them run have prices that are close to those of Free. While Europe is known for a lack of competition in the telecom market, Free has gone against the grain.

The biggest question one can ask, after reading the above, is why does it cost so much for connectivity in the United States and other countries? For instance, getting a 16 GB iPhone 4S from AT&T will set you back $199, plus $39.99 per month for the cheapest voice plan (450 minutes) and $20 per month for the cheapest data plan (300 MB). That won’t include text messaging, where your choice is either $20 per month for unlimited use or $0.20 per sent or received message. So at minimum, you’re paying $59.99 per month. Of course, the end cost for two years is closer, given the unsubsidized cost of the iPhone in France — by my calculation, the iPhone and service would cost about $180 less in France over that two year period (the standard contract length in the United States). If your voice and data needs are modest, though, Free’s limited-use plan could save you far more significant amounts.

What about Internet, TV, and landline phone service? Picking Time Warner Cable, one of the major U.S. providers, and going with the cheapest possible options that compare with Free’s (basic TV with a DVR, up to 3 Mbps Internet access, and unlimited nationwide phone calls) you’d pay roughly $110 per month. Free’s comparable — or perhaps better, thanks to the Freebox Revolution hardware — plan is less than half that, at about $50 per month.

Add your Time Warner bill to the AT&T bill and you’re at roughly $160 per month, compared to about $71 for Free’s services — again, less than half of the U.S. equivalent. Run that across a two year iPhone contract, including the cost of the iPhone, and Free would charge about $2500, whereas you’d pay over $4000 in the United States.

Granted, the telecommunications systems in France and the United States have evolved quite differently, and there are different regulatory regimes in place. But it seems that if Free could so completely disrupt the telecom market in France by offering such low rates, the same ought to be possible in the United States and other countries.

 

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Comments about Free Disrupts Telecom Market in France
(Comments are closed.)

JohnB (SciFiOne)   2012-04-30 09:47
Excellent!
Mike Vlasman  2012-04-30 11:14
Kirk, I hope you're right and something like Free comes to Canada soon. We have the most anti-competitive telcom situation in the known universe.
Republic Wireless is offering unlimited talk, text, and data for $19/month in the US. Lot's of gotchas including that it's in beta so you can't actually order it today but it's coming. Other companies are offering $45 & $50 unlimited plans.

They live at the grace of the big carriers as if they start to become too successful the big companies will be allowed to use predatory pricing practices to drive them out of business either by increasing the cost of the infrastructure they rent to the new companies or by undercutting them with lower prices until they fold.

Fixed services are a bit different. My guess is that Orange is required to rent DSL to Free as a common carrier on a non-discriminatory basis and that DSL is widely deployed. In places where high-speed DSL is an option to cable, significant price competition exists. For example, my niece just got 18mb DSL and voice for $20/year. Competition works but there is no competition for fixed service in most of the USA.
Peter U  An apple icon for a TidBITS Contributor 2012-04-30 18:32
According to the Economist, telecommunications in Western Europe is still cheaper than in the rest of the world: http://www.economist.com/node/21517126
Brian Hannon  2012-05-01 02:30
It seems from recent news articles that Free plans to use every freebox as a micro-cell to place calls and data over wifi! Interesting tactic to tie the two networks together...
Adam Engst  An apple icon for a TidBITS Staffer 2012-05-01 06:48
And it makes a ton of sense, since it probably reduces their costs in renting the landlines from Orange.
Kirk McElhearn  2012-05-01 11:21
They still pay Orange for the backbone and last mile, but it's probably cheaper.
Massimo Mauro  2012-05-01 07:33
As it happens, Kirk forgets two basic things:
1 - the regulatory environment is completely different from the US, namely a number of EU regulations oblige the operators to set a number of maximum prices;
2 - the standard landscape is completely different: only GSM mobile telephony existed, now moving on to 3G and 4G services.
This would have been impossible in the fragmented US market, where a number of mobile telephony systems coexists, there are quite a few operators, and not everybody uses the same standards for texting...
Free can do what it does only because Europe chose to regulate very strongly, not because the "market" made it possible...
Let us not re-write history...
Kirk McElhearn  2012-05-01 11:23
1. I don't know what you mean about "maximum prices."

2. As for the actual network, that doesn't make much of a difference to what it costs.

As for the US market, maybe the FCC should impose interoperability.