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Iliad's Entrance Not a Busy Signal for French Wireless Market

Analysis of fourth entrants in other markets demonstrates existing operators' ability to adapt.

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We are excited about Iliad's recent launch of a fourth wireless network in France, as concerns about its entry have been overhanging the market for two years. We have long said that Iliad won't be as successful as management expects and, more important, won't cause as much pain as the market anticipates to existing operators  France Telecom (FTE),  Vivendi (VIV), and  Bouygues (EN). We continue to believe that as a fourth entrant this late in the game, Iliad will be less successful than it predicts and will not reach the penetration rates the market expects.

France Is Our Favorite Wireless Market
France epitomized our favorite wireless market: It had only three operators, each with its own network, and all behaved rationally. That changed with Iliad acquiring a fourth wireless license at the end of 2009 and stating its intent to aggressively cut prices. In response, the existing operators have been reducing prices in preparation for Iliad's entrance and have launched separate lower-value brands. Iliad launched service in January with even more aggressive pricing than we expected. However, the other operators responded in kind. An important item to remember is these low-priced brands are only available through the Internet, while most consumers, especially high-value contract customers, want to visit a store.

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Allan C. Nichols does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.