I anticipated last week the difficulty to raise 4G tariffs in France. This week’s news just highlight the issue: Free Mobile announced that 4G will be offered, including 20GB data, at no extra cost compared to their existing 3G subscription, below 20€.
There are acerb discussions in France to evaluate whether Free Mobile will be able to deliver quality 4G services as their network is embryonic.
Let’s try to go beyond this fight and assess whether the level of tariffs of Free Mobile could become a tariff standard worldwide.
My readers may be puzzled: how could the smallest mobile operator in France give a pace that should be followed internationally. But this is not what I mean: the French market may just become the frontrunner of a profound market change that we could witness in other markets too.
Just two days after the new 4G offer and tariffs By Free Mobile, its UK alter-ego, Three, the smallest UK mobile operator announced too that it is including 4G at the same conditions as its existing 3G offer, without any price rise. Like Free in France, Three has limited 4G capabilities, thus the service has to be proved. But the impact in France or in UK in the mind of consumers is that 4G should not be offered at a premium compared to 3G. It will now become difficult for the other MNOs to justify such a premium. And alternative 4G discount offers may be launched soon: B&You, the low-cost brand of Bouygues Telecom, has already announced it will counter the Free Mobile 4G offer.
This analysis seems only inspired by recent Free and Three company announcements. Let’s look more thoroughly at the leading 4G market in the US, where the 4 major 4G operators have achieved far higher ARPU than in Europe, and have become actual cash machines. If indeed ARPU continues to grow at skyrocketing levels in comparison to European mobile operators for AT&T (USD 65.2 per month in Q3 2013) and Sprint (USD 64.28 per month in Q3 2013), T-Mobile seems to play the maverick: it has undercut its tariffs. Its ARPU has decreased 8% in a year to USD 52 in Q3 2013. This decrease compares very much with the impact on Orange ARPU in France (-10%) within a year after the arrival of Free Mobile slashing mobile subscription prices.
The result of this aggressive price offering for T-Mobile is a sustained gain of market share. It added 648,000 postpaid customers in Q3 2013, more than the far bigger AT&T. So it will be interesting to watch how long T-Mobile could go on being price aggressive, with a current ARPU about 20% lower than AT&T or Sprint , and thus gaining market share without reaction from the other players. It could indeed spark a fight leading to a widespread tariff decrease in the US. The current T-Mobile ARPU is equivalent of the one of Orange in France at the beginning of 2012 (€38.4), so price differences between the two continents may not seem so huge anymore.
The prospect of selling basic 4G subscription at a premium seems difficult to sustain. Indeed 4G may be marketed as a “quicker” than 3G service, but it remains a commodity service, that economies of scale should sustain on the medium term. Added value and convergent fixed/mobile services should be developed by third parties to address specific customer segments and so create rich solutions for which 4G service is just a transport layer.
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