Vivendi warns of major change at SFR to counter Free

The French mobile market has been shaken up by the entry of low cost 3G operator Free Mobile, and partly as a result, major change looms at the country's second cellco, SFR. Its parent, media conglomerate Vivendi, warned this week of "drastic and structural changes" at the unit, as competition and regulatory pressure mounts.

SFR contributed to a 13.4% decline in Vivendi's first quarter net income, which slumped to €823m, and a fall of almost 1% in revenue to €7.1bn. Sales at SFR were down 4.2% to €2.93bn while mobile revenue was down 6.8% to €1.99bn. The cellco lost 274,000 mobile customers during Q112, as it felt the impact of the Free Mobile launch by quad play group Iliad. The new service has hit all the main mobile carriers, with market leader Orange losing 615,000 wireless users in the quarter.

Regulatory change also had a part to play. "Even though the price cuts caused by the new competitive environment have not yet had a significant impact in the first quarter, the several price cuts imposed by the regulators weighed heavily on SFR," said Vivendi in its statement.

"We have been designing plans to adapt SFR to the new competitive environment," said CFO Philippe Capron on an earnings call. "As always you have quick wins and easy to implement things, and more drastic and structural changes. We have both things in our plans." One of the plans may be to sell off some group assets, with speculation surrounding games firm Activision Blizzard, and even pay-TV group Canal Plus.

Meanwhile, Free Mobile said it signed up 2.6m subscribers in the 80 days between its launch and the end of Q1. This equates to about 4% of the French mobile market. Since the user base is close to saturation, most of Free's gains have come from rivals - in the quarter, the total number of mobile connections rose by just 854,000.

Free has had a disruptive impact by leveraging its existing fiber and home Wi-Fi infrastructure to price its new mobile services at a low level and push quad play bundles. It sells two no-contract plans at €2 a month for 60 minutes of voice calls, and €19.99 for unlimited voice, SMS, MMS and internet access. The cellco, which uses a combination of its own new network and an MVNO deal with Orange, said its user base at the end of Q1 was

"distributed evenly between the two plans, between the Free community and newcomers, and between subscriptions with mobile number portability and those with a new phone number assigned."

The carrier added in its statement: "With its commercial and price innovations, Free Mobile has liberated conventions and galvanised a market that had been at a standstill for many long years." It also crossed the 5m mark in its fixed broadband base for the first time, adding 191,000 new customers, over half the total net adds in the French broadband sector during the quarter. Iliad's total Q1 revenue rose by 29% year-on-year to €655.7m, ahead of analyst predictions, and this included €97.5m from the new mobile business.