Bloomberg News

Iliad Profit Falls Short as Niel Beats Li on New Customers

March 08, 2012

Iliad SA (ILD), the broadband provider founded by entrepreneur Xavier Niel, reported profit that trailed analysts’ estimates on spending to become France’s fourth mobile-phone network operator.

The owner of the Free brand, which introduced discounted mobile-phone packages on Jan. 10, said it would spend 250 million euros ($331 million) this year to build its wireless network, a 76 percent increase from 2011, excluding costs to purchase frequencies.

With mobile subscriptions starting at 2 euros a month, Iliad won as many as 2 million customers from France Telecom SA (FTE), Vivendi SA (VIV)’s SFR unit and Bouygues SA (EN) in less than two months, according to Jean-Ludovic Silicani, head of French regulator Arcep. Vivendi said last week that the new competition would weigh on its profit for the next two years.

“There isn’t another operator in the world that has won as many subscribers as us in such a short time,” founder and Chief Executive Officer Niel said at a press conference.

Iliad didn’t disclose how many subscribers it has won since Jan. 10.

Unprecedented

Iliad’s burst, to nearly 3 percent of the French mobile market, is unprecedented in the past decade in Europe. Other late entrants, such as Yoigo in Spain or Three in the U.K. and Italy, were slower to gain pace in similar markets with at least three existing competitors.

TeliaSonera AB (TLSN)’s Yoigo edged up to 5 percent of the Spanish market by the end of 2011, five years after its service started. Three, the mobile-phone unit of billionaire Li Ka-shing’s Hutchison Whampoa Ltd. (13), took about eight years to grab 10 percent of the U.K. and Italian markets.

Iliad now plans to accelerate the deployment of its own network. For now, about 95 percent of Iliad’s mobile traffic moves on France Telecom’s network, as part of a roaming agreement the companies signed last year, Chief Financial Officer Thomas Reynaud said.

The company had 20 million euros of “losses” last year to start the mobile service, Reynaud said. Full-year net income fell 20 percent to 251.8 million euros, Iliad said, missing the 281 million-euro average estimate of analysts surveyed by Bloomberg. Second-half profit fell about 25 percent to 106.8 million euros, on revenue of 1.08 billion euros, according to Bloomberg calculations.

4.8 Million Subscribers

The CFO predicts revenue will grow “at a strong pace” in 2012, and forecast revenue of 4 billion euros by 2015.

“The mobile launch was a massive success,” Reynaud said, while refusing to disclose numbers. “We’ll see the buzz around mobile give our broadband unit a boost as well,” he said.

Iliad has introduced disruptive phone offers at discounted prices in France for the second time in a decade. It set the standard for so-called triple-play offers in 2001 by pioneering bundles of fixed phone, television, and broadband Internet at about 30 euros a month.

The company’s Free broadband division added 407,000 subscribers last year. Iliad has 4.8 million broadband subscribers in total.

Iliad shares rose 0.5 percent to 99.22 euros at 4:55 p.m. in Paris trading, giving the company a market value of about 5.7 billion euros.

To contact the reporter on this story: Marie Mawad in Paris at mmawad1@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net


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