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Author: Vincent Poulbere
ARCEP, the French telecoms regulator, will conduct a consultation during the autumn to test the interest of potential new entrants for the fourth 3G licence. Current 3G licensees in France are the 2G operators, Orange, SFR and Bouygues Telecom. Despite the price of the 3G licence having been reduced in 2001 from €4.95bn to €619m (plus a 1% tax on service sales), no new entrant had been a candidate for the fourth licence.
The purpose of ARCEP's consultation is also to implement the re-farming of 2G frequencies at 900MHz to use them for 3G. 2G licences, which have been renewed recently in France, already enable this. Orange and SFR are now interested in deploying UMTS in 2G bands.
The allocation of a fourth licence for 3G promises very exciting debate, but why would there be a new mobile entrant candidates in France now when there were none four years ago? Market conditions are now more difficult for new entrants. The French mobile services market growth (in revenues and customers) has slowed down (less than 5% of revenue growth expected in 2006), while the market is more competitive with MVNOs (from three players to around 15 now).
A new entrant's business case would therefore be extremely challenging. Thus the prospect of there being candidates for the fourth licence depends on a number of factors, an important one being the licence conditions, especially for coverage obligations and licence fees. The licence should guarantee 2G roaming onto one of the 2G operators' networks, with attractive wholesale conditions. ARCEP is very keen on enabling a fourth licensee to increase competition in the French mobile market, so we expect the consultation in autumn to be a debate around the terms of the licence. However, there is limited scope to adapt licence conditions, because existing 3G operators will protest heavily against there being too favourable terms for a new entrant.
Among the potential scenarios for a new entrant, we believe two business models could be interesting to consider:
- metropolitan 3G networks, based on deploying 3G networks only in large cities (if the licence allows it): for instance, a new entrant could offer nomadic wireless broadband services and localised offerings in areas with high population density
- shared 3G networks, based on a wholesale business model with multiple 3G MVNOs. A new entrant could also enter into strategic partnerships with various types of companies to develop specific offerings for them; eg, mobile TV with broadcasters, telemetry and M2M applications with utilities, nomadic broadband with fixed operators and Internet applications with web players.
Overall, a new entrant should consider strategies based on disruptive business models and innovative service offerings. Head-to-head competition with established operators, based on similar 3G strategies around voice and data services, is probably a dead end.
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