Iliad threatens Italy with legal action over 5G spectrum extensions

Iliad is reportedly on the verge of taking Italian watchdog Agcom to court over licence extensions in the valuable 3.5 GHz band which were offered to various WiMAX operators back in 2008.

After having to defend the almost laughable prices operators will be having to fork out for 5G spectrum, Agcom is now under-fire for considering cut-price extensions for four companies in the 3.5 GHz range. With Iliad Italia forking out €1.2 billion 20 MHz of 3.7 GHz and 10 MHz in the 700 MHz band, you can see why the team has issue with the extensions being offered.

The licenses in the 5G-applicable frequencies were initially granted to Linkem, Tiscali, Go Internet and Mandarin back in 2008, with the option of a six-year extension once the initial license expires in 2023. According to Corriere delle Comunicazioni, all of Italy’s operators are irked at the situation, but Iliad is leading the charge with the threat of taking the regulator to regional courts to dispute the decision.

What is worth noting is this is not taking any of the spoils away from the victors of the expensive auction. Not all of the valuable assets in the 3.4-3.6 GHz frequency range were released for auction, with the remaining licenses being used to honour the extensions. Whether these extensions will be allowed to stand is unknown for the moment, as aside from Iliad protests, Italian Senators have requested an investigation by Ministry of Development boss Luigi Di Maio.

One company which will certainly benefit from the saga is Fastweb, a Swisscom subsidiary which primarily offer broadband services in Italy. Fastweb came to a €150 million wholesale agreement with the cash-strapped Tiscali in 2016 for 40 MHz in the 3.5 GHz band, an absolute steal when you compare to the inflated prices for 5G-capable spectrum in the recent auction. Fastweb might be looking pretty now, but the convergence plans will certainly come under-threat with Iliad legal ambitions.

For those who are of a logical disposition, and considering the inflated figures being discussed in the recent Italian auction, one would think the Italian government would decide against renewing the extensions and offer the available spectrum in an auction. Legacy-agreements are certainly something to consider, though the landscape has seemingly evolved enough over the last decade suggest these extensions are no longer viable.

This certainly will not be the only legacy-agreement in place around the world which will come back to bite, though the saga does not add credibility to the Italian government’s ability to operate in a fair and just manner.

Italy trousers €2 billion in pre-5G 700 MHz auction

A spectrum action in Italy covering a bunch of bands has concluded its first phase with prices roughly in line with expectations.

Bidding is underway on spectrum in the 700 MHz, 3.7 GHz and 26 GHz bands, but only the former has concluded. The starting price was €338 million per 2×5 MHz block of 700 MHz spectrum and TIM, Vodafone and Iliad all got 2×10 paired. Iliad apparently didn’t need to bid but the other two don’t seem to have craven the price up much as you can see from the table below.

Wind didn’t get any 700 MHz spectrum, but seems to be pretty keen on some 3.7 GHz action, having bid €338.5 mil for an apparently pre-specified 80 MHz block of it. TIM is leading the chase for the only other 80 MHz chunk, with Iliad apparently content with 20 GHz and Wind the front runner for the other 20 MHz. A contiguous 100 MHz block of 3.7 GHz would come in handy but it seems likely that Wind is bidding against Vodafone for that bit.

TIM issued an announcement gloating about the fact that it now has spectrum in every sub-1 GHz band available. “This important result increases the frequencies available to TIM which are essential for the 5G services,” said the TIM statement. “The new spectrum will be added to the 20+20 MHz that TIM has in the low frequency 800 MHz and 900 MHz bands, which already ensure the supply of UBB services to more than 98% of the population.”

It seems sensible to have a great big auction of a bunch of different spectrum, given the imminence of 5G in the wild. Iliad has been guaranteed a nice lot of 700 MHz, which will help a lot with coverage, but it might want to have another bid for that bigger block of 3.7 GHz if it want to be a significant 5G player. You can read further analysis on this at Light Reading here.

Italy 700 MHz auction table

Iliad share price continues to tumble as competition heats up

The share price of French telecoms wild-child Iliad has continued to tumble as lukewarm results fail to impress investors looking for a spark in the broadband business.

Since the turn of the year, the erosion of share price has been quite noticeable. Some companies might be able to accept a small blip in performance, but a 45% decline over the last ninth months will certainly have the executive team shifting uncomfortably. Revenues remained relatively stable, however losing 70,000 subscribers in mobile and 47,000 in broadband over the first half of the year is a worrying trend.

Looking specifically at the financial side of the results, total revenues stood at €2.4 billion, a minor decrease on the same six month period of 2017, with mobile rising 2.4% to just over €1 billion and broadband dropping 2.2% to $1.3 billion. Italy brought in €9 million, though the team has been boasting of reaching 1.5 million subscriptions in early August. This seems to be one of the few bright spots in the six months.

Having kicked off the race to the bottom, causing chaos for the incumbent mobile providers during 2012, Iliad seems to be getting a taste of its own medicine with a competitive market being blamed for the tepid performance. Unfortunately for the telco, the misery is not being equally shared as rivals Orange , SFR and Bouygues Telecom all gained subscribers over the same period. Stability in the revenue column might be an uptick, but investors should be concerned about the first drop in mobile subscriptions since the 2012 launch, and a cash-intensive fibre business which is not hitting the marks.

That said, Iliad caused chaos once and has the potential to do it again.

The management team has excepted this performance is not good enough, though various new initiatives will look to return the business to a new growth cycle. On the mobile side of things, new tariffs have been introduced to diversify the subscriber mix, while incentives have been put in place to upgrade users to the more lucrative 4G contracts. 4G subscriptions did increase by 200,000 over the period, and the team are targeting a 25% market share, though have declined to put any deadlines on the objective. Perhaps this is one of the reasons for a lack of confidence in the business, no commitment to top-line objectives.

In the broadband business, a new promotional campaign with competitive prices has been introduced, as well as a play to catch attention through TV services. The content side is yet to be launched, and it will be interesting to see whether Iliad takes the value add or revenue generation approach to content. We suspect with subscribers numbers going south, a value add proposition would be a much more sensible approach to stemming the consistent flow of customers heading towards the exit.

Iliad signs up a million Italian customers in 50 days

Iliad caused chaos in France with the launch of Free Mobile in 2012 and it looks set to repeat the trick in the Italian market.

Launched on May 29, Iliad became Italy’s fourth mobile operator. Competitors have been moaning since, but you cannot argue with the success of the launch. Iliad claimed it was signing up more than 10,000 customers a day in the first month, a trend which seems to have accelerated. 50 days after launching in the ancestral home of pizza, mopeds and questionable hairstyles, Iliad has hit the 1 million subscriber milestone.

The original offer was certainly an aggressive one, 30GB of data, unlimited voice minutes and unlimited texts for just €6 per month, and the Italians have snapped it up. Some might have wondered what the next play would be, this initial offer was only available for the first million customers, though the firm has confirmed it will be extending the offer for the next 200,000 subscribers.

The strategy seems to be simple here; disruption and very little else. Most newcomers aim for disruption as a means to gain a foothold in the industry, but many will also hope to make money simultaneously. With such a deal on offer to customers, you have to wonder where Iliad is going to make any cash, and how long regulators will allow this deal to continue before stepping in.

The status quo has already been shifting in Italy, with many operators attempting to lessen the impact of Iliad’s offer with reduced price tariffs of their own. Vodafone, for example, launched its own cut price brand Ho, offering 30GB of data a month for €7. It might be resisting the temptation to undercut Iliad, but we’ll see how long competitors can stomach the steady flow of customers heading to the exit before the race to the bottom begins.

India is another recent example where a newcomer has caused chaos, with little apparent concern of the cost. Upon launching, Reliance Jio seemingly sacrificed profit in pursuit of scale, though after extending the ‘free’ deal several times, Indian regulators stepped in. Disruption is all well and good, but when an aggressive pricing strategy threatens to bankrupt the telco industry, something has to be done.

Arguably, the sacrifice of profits in pursuit of establishing a comfortable subscriber base worked very effectively. Speaking at Light Reading’s Big Communication Event in Austin, Mathew Oommen, President of Reliance Jio Infocomm, said the company had 186 million subscribers, while the JioTV service has 100 million subscribers and JioChat has 50 million. The foundations were laid in mobile before the team looked to convergence to build profitability elsewhere. Aside from content and chat, the team also have made moves in finance, healthcare and music. The next major step will be in the drastically underdeveloped Indian broadband market.

Iliad can learn from these lessons in Asia, as well as its own disruption in France with Free Mobile in 2012. Considering the telco currently has a 17% market share in its home market, and has started making moves in parallel markets (admittedly with mixed results) there is precedent for the success of the strategy. With quarterly results on the horizon, Iliad needed some good news considering its most recent conversation with the financial markets.

Back in May, following the Q1 results call, Iliad share price crashed by 20%, the largest ever drop for the telco in a single day. Net additions for mobile subs did not meet expectations, while the number of broadband subscribers dipped for the first time in the company’s history. Time will tell whether the team has managed to improve the performance of the business in France, though gaining traction in the Italian market will certainly be welcome news for competitors.

We suspect the pain for Italian competitors will not be over for some time. Iliad will likely continue to stress the market on its own terms, offering loss-leading subscriptions in search of scale, until it is told not to anymore. The Italian market could be a very interesting place over the next couple of months.

Iliad aims to bring French disruption to Italian mobile market

French telco group Iliad has become Italy’s fourth mobile operator and is following the same playbook as it did in France.

Iliad-owned Free Mobile became France’s fourth MNO in 2012 and significantly disrupted the market with an aggressive pricing strategy, leading to much pouting, shrugging and moaning from the three incumbents. The result today is a 17% subscriber share, so Iliad quite reasonably seems to think it’s worth repeating that strategy in Italy.

The brand isn’t Free, or even Libero in Italy, however. The company is simply going for Iliad there, perhaps gambling that the birthplace of the Roman empire will appreciate the classical reference. There seems to have been little fanfare, with the very brief press release pointing hacks towards the Italian language website. Thanks for that Xavier.

The headline deal does seem a very aggressively-priced one. The first million subscribers will get a SIM-only deal that gives 30GB data, unlimited voice minutes and unlimited texts for just €6 per month. That’s so cheap it’s hard to see how Iliad can possibly make any money from it and it will be interesting to see how the company proceeds once it hits that threshold.

The CEO of Iliad Italia, Benedetto Levi, has created a Twitter account to celebrate and apparently intends to use it primarily to pick fights with his competitors a la Legere in the US. Judging by the political turmoil currently taking place in Italy it seems ripe for disruption right now, so we wouldn’t bet against Iliad Italia hitting the million mark pretty quickly.




Iliad profits grow as it looks across to Italy

It’s easy to get distracted by the whole Vivendi/TIM saga, but Iliad is another French business looking towards the land of pizzas, Vespas and slicked back hair for future fortunes.

Looking at the financials first, the French telco had a positive 12 months adding just short of one million subscribers to take its total market share up to 19% of the French market. On the broadband side, the business is looking pretty positive as well. Iliad currently boasts of 6.5 million broadband subscribers, 556,000 of which are FTTH, up from 310,000 at the end of 2016. Looking at the spreadsheets, total revenues for the year increased to €4.987 billion, a year-on-year increase of 5.6%. Not bad.

Iliad is a company we rarely speak about in the UK, partly because Orange is a more dominant player on the wider European space and the Vivendi/TIM situation is too unusual to pass on, but these are some pretty solid results. After disrupting the market with its Free Mobile offering, the telco is showing it wants more than 15 minutes of fame with its investment plans as well. FTTH plans are continuing to develop as 6.2 million homes are now fibre connectable, up two million compared to 2016, while the team claims to have 4G coverage of 86% of the French population.

Over the next 12 months the team plan to open another 2000 new sites, driving 4G coverage up to 90% of the population and 3G to 95%, while also finalizing the migration of 4G sites to 1,800 MHz. In the broadband business, the aim is to increase the FTTH subscriber base by 300,000 to 500,000 and have 9 million connectible FTTH sockets by the end of the year.

Aside from consolidating its position in the French market, Iliad has also ramped up plans to become Italy’s fourth mobile operator before the summer. 2017 was a year of planning and organization, the team hired 80 employees, put in place a management team and €220 million paid to the Italian government for the re-farming of 1,800 MHz frequencies, but 2018 is the year to make some noise.

The next couple of months could make the Italian market a very interesting place, with Iliad planning to achieve an EBITDA break-even in Italy with less than 10% market share and also the separation of the fixed network business from TIM. With Vivendi/TIM looking to capitalise on the media market to turn a profit and Iliad possibly aiming to use the same strategy which brought success in France, it could be a perfect mixing bowl of chaos.

Elsewhere in the French market, Altice has announced it has entered into an exclusive agreement to sell its international wholesale voice carrier business to Tofane Global. The announcement is part of a wider Altice strategy to remove any non-critical assets from the portfolio.

Iliad takes a bite of Irish telco Eir

French operator Iliad has teamed up with its founders private investment vehicle, NJJ, to buy a majority stake in Ireland’s largest telco, Eir.

As part of the new deal, Iliad will pay roughly €320 million to acquire 31.6% of Eir, while NJJ will take 32.9%, while existing shareholders Anchorage Capital Group and Davidson Kepner will retain a combined 35.5% of the Irish telco. While this is a minority stake for the moment, there are options for Iliad to take operational control of the telco in 2024.

The call option is exercisable in 2024 and would enable Iliad to acquire 80% of NJJ’s stake in Eir, at a 12.5% discount of fair market value. This discount would be determined by an independent valuation expert.

Such an acquisition will serve to feed Iliad’s geographical diversification ambitions, offering a strong entry into the Irish market. Aside from the domestic French market, Iliad has made moves into Switzerland and Italy also.

Eir is currently the market leader on the fixed line side, commanding a 32% market share, while it is in an attractive challenger position for mobile, holding 18% of the market. Revenues across Eir for the financial year ending June 2017 stood at €1.3 billion.

The news follows several months of debt restructuring for the Irish telco, and upon completion of the deal, its current CEO Richard Moat has said he will step down. The new management team will be determined by Iliad and NJJ.