EUR 850.00 For Business Accounts Only

Morningstar | Iliad Should Find It Tougher to Gain Wireless Share in Italy Than It Did in France

Iliad is the second-largest broadband and fourth-largest wireless provider in France. The broadband business has generated solid revenue growth, margins, and returns on capital and has now begun moving broadband customers to fiber, helping it remain a strong competitor.Iliad entered the French wireless market at the beginning of 2012 with very aggressive price offerings. While it was late entering the market, it was able to leverage its broadband base and name recognition to exploit weaknesses in the market. The other three operators had grown complacent, with high prices and margins, providing Iliad the opportunity to enter at the low price of EUR 19.99 per month, and less if a broadband client. The low price caused significant churn from the other operators, particularly among price-sensitive consumers. It also attracted subscribers that never had wireless service. Since Iliad’s entrance, the other three operators have all reduced prices, and the wireless penetration rate now exceeds 125%, more in line with other European countries. However, Iliad's initial success was largely enabled by an agreement allowing it to use Orange's 3G network. In recent years, the firm has dramatically increased its capital spending to build its own networks, which is especially important as the industry has shifted predominantly to 4G. The effort has led to better network quality, but we believe the network remains inferior, especially to Orange. However, we expect Iliad will continue to do well on the wireless side with price-conscious consumers in France. Iliad is now attempting to replicate in Italy the wireless success it has had in France. In June 2018, Iliad launched service in Italy with an initial price of EUR 5.99 per month, which it has subsequently increased, in two steps, to EUR 7.99. The price remains lower than we anticipated and has led to strong subscriber growth, with the firm reaching 2.8 million customers by the end of 2018. While aggressive pricing has helped it gain some scale quickly, we believe it hurts the firm’s long-term revenue opportunity, as it is difficult to raise prices when price is the primary point of competitive differentiation.