Lachaux subsidiary of Altice (holding shares 95.9%) since

Lachaux Aymeric Luc (3035426643)


Telecommunications market in France




Telecommunications services have been a state monopoly in France until the
1980’s. In fact, the sector requires important investments to operate. However,
the European Commission (1987) encouraged France and European countries to open
the market of telecommunications. Progressively, the public administration of
telecommunications became a private firm. In 1990, an authority of regulation
is created to promote a healthy competition in the telecommunications market. Several
firms have since entered the market to compete with the historic public
operator and today, four firms own about 90% of the market. In this paper, I
will analyse the economic outcomes of the industrial organization of the sector
and its evolution. I will also discuss the anti-competitive behaviours of the
firms and regulation of the market through different cases.


Market structure and outcomes


2.1 Firms and data


The ARCEP (Autorité de régulation
des communications électroniques et des postes) is public authority which mission is to regulate telecommunications in
France. They also collect and publish information on French electronic communication
sector since 1997. All the data in this paper comes from the annual public
activity reports when sources are not indicated.


Orange was originally a division of the French Ministry of Posts and
Telecommunications and called France Télécom from 1988 to 2013. The French
government and the public investment bank still represent a major shareholder
(22.95% of the capital and 29.29% of the voting rights). The data regarding
Orange’s activities comes from the annual reports of the Group Orange.


SFR Group is a subsidiary of Altice (holding shares 95.9%) since 2014.
SFR (Société
Française du Radiotéléphone) was created in 1987 by La Compagnie générale des eaux (called Vivendi
since 1998). The data regarding the activities of SFR comes from the annual
reports of Vivendi until 2014 and then from the annual reports of Altice.


Bouygues Telecom is a subsidiary of Bouygues (holding shares 90.5%)
created in 1994. The data regarding the operator’s activities comes from the
annual reports of the group Bouygues.


Iliad created Free (wholly-owned subsidiary) in 1999 and Free Mobile
(holding shares 95.72%) in 2007. Free operates in the fixed services and Free
Mobile in the mobile services. The data regarding Iliad’s activities comes from
the annual reports of Iliad.


The annual report refers to the legal document that contains information
on the financial situation of the company but also on its activities. It is
named Document de référence in


2.2 Market characteristics


The telecommunications sector consists in mobile services and fixed
services. The fixed services account for about 50% of the sector total revenue
in 2016. However, the fixed services sector is relatively less dynamic in
comparison with the mobile services. In fact, the revenue of the sector was
constant (0,02% decrease) between 1998 and 2016. The same firms present in mobile
services also own 90% of the fixed services market. Therefore, this particular
market will not be discussed in further details.



The telecom market as a whole is characterised by a large number of
small clients and a growing demand: today, a vast majority of people in France usually
have one or two subscriptions. In fact, in 2016, the ratio of mobile lines
divided by number of French citizens was about 110% while it was 20% in 1998.
On the other hand, the number of producers is relatively limited. During the
last 30 years, four firms which own their own network entered the market. In
2016, these operators accounted for about 90% of the telecommunications sector’s


The rest of the markets shares is divided
between a large number of small firms, the Virtual Network Operators (VNO).
These operators do not own any telecommunications network infrastructure.
Therefore, VNO are clients of the four main operators to access their network
and VNO’s clients are indirect clients of the four main operators. In order to
simplify, operator’s data we will discuss comes from the annual reports of the only
operators which own a network.


Investment in the telecom industry is very
important. As figure (2) shows, real investment1 in telecommunications was equal to 8.9
billion Euros in France in 2016. This amount is growing since 2004 (62%
increase) despite the entrance of new competitors. Therefore, these results
indicate that competition is not inefficient to the society in terms of
creation of productive capital.



When we look at the employment in figure (3),
we can observe that results greatly differ from the results in terms of
investment. Except during the 3 years after Free Mobile was granted the licence
to operate in the mobile sector, the direct employment in the sector decreased
sharply. Such findings can be related to the increased productivity that the
sector has experienced during these years and the declining revenue from mobile
services after 2010. The fall of employment while the number of clients
increased is however not predicted by the theory. Consequently, we cannot evaluate
the role of the increasing competition in the decrease of employment.



Telecommunications industry requires
important investments but the costs of an additional unit is relatively low and
constant. The high fixed costs and constant marginal costs explain why the
market was a state monopoly for a long time in order to attain efficiency
through economies of scale. This industry is also particular because goods are
relatively homogenous. These market features indicate that the telecom industry
in France can be compared, to some extent, to a Cournot oligopoly.


The case of mobile services


As people use more and more phones, the
demand for mobile services rose rapidly during the last twenty years. In fact,
the number of mobile lines has been multiplied by seven during this period. Therefore,
in order to eliminate the bias caused by the increasing number of clients, we
will refer to the market shares2 of the four operators to discuss the outputs
of each operator.


Despite this growing demand, from 1996 to 2012, only three operators
operated in the markets with their own antennas. In fact, few years after
Orange and SFR, Bouygues Telecom entered the market in 1996 and quickly reached
a market share of 18% in 2000, while Orange had 48% and SFR, 34%. Figure (4)
shows that market shares were then stable until the entrance of a fourth
competitor in 2012. When Free Mobile launched its offers in 2012, the operator also
rapidly reached 17% of market share in 2016



As show by figure (5), such organization of the market has led to a
first important decrease of prices3 in the 1990’s followed by an increase between 2000 and 2004. Such rise
can be explained by the collaboration of the three operators at that time (the
related law case will be discussed in the third part of the paper). Prices then
slightly decreased during the next five years. After December 2009, when Free
Mobile was awarded an operating mobile licence, the three operators started to
sharply decrease their prices in prediction of “intensifying
competition” as stipulated in the annual report of Orange in 2010. Prices
kept decreasing when the firm actually entered the market: operators were
indeed forced to follow the even lower prices of the new entrant. For instance,
the average monthly revenue per user for Free Mobile is about 13€ since its
creation in 2012. For Orange, this revenue felt from 34.2 in 2009, to 28.5 in
2012 and, 22.2 in 2016 while its market share decreased from 45% in 2011 to 40%
in 2016. The effect of the entrance of Bouygues in 1996 and Free in 2012
support the theory of Cournot Oligopoly: more firms in the market make the
prices decrease and the number of services sold increase.



We can partly attribute the decrease of
prices after 2004 to Mobile Virtual Network Operators (MVNO). In fact,
massively entered in the market in 2005, these operators were 34 in June 2016.
We can see in figure (6) that their market share in the total mobile sector
rapidly reached 11% in 2011. With the entrance of Free Mobile in the market in
2012, their progression stopped and their market share slightly declined. These
firms contribute to the dynamism of competition in the market, but several
reasons can explain their stagnation. In fact, even if they do not make real
investment in a network they nonetheless have to pay the operators to access
their infrastructures. They also have a lack of clients to realise economies of
scales and they do not own physical shops to attract new ones (they only sell
their services online).



Nevertheless, prices do not fully determine
the market shares as mobile services are not totally homogenous. Firms can
indeed use their quality of service to differentiate from each other. However,
they homogeneously improved their products with more data, calls and texts
messages per month for the same price. Therefore, the quality of network and
the coverage has greatly matter in the market structure. The ARCEP publishes
the quality of network of each operator on the website For
instance, 96% of France was covered in 3G in 2016 by the network of Orange
while this ratio was 93% for SFR, 85% for Bouygues and, 83% for Free. There is,
in fact a strong correlation (0.988) between the 3G network coverage and the
market shares in 2016. Indeed, more revenue helps operators to make investments
and better services help firms to gain new clients. Same patterns apply to
quality of network and can explain the correlation (0.838) of market shares
with the average download speed using the services of each operator (28.8 Mb/s
for Orange, 24.2 for SFR, 23.8 for Bouygues and, 17.4 for Free). Such differentiations
can partially explain the price dispersion which is inconsistent with the
theory: Orange can charge a higher price but still retain most of its clients
because the firm offers better services.


All these evolutions of the market can be seen in the profits of
Bouygues Telecom in Figure (7). As a new entrant in 1996, the firm made losses
during the first years because of important investments and its low prices made
to attract new clients. The following years were more profitable due to
economies of scale, price increases, and technologies improvement. After the
entrance of Free Mobile, profits felt to more or less zero. On the other hand,
Iliad, that launched Free Mobile was making even larger profits. This can be
explained by the theory of good firms and bad firms: the good firm, Free
mobile, charges a price such that the bad firm, Bouygues Telecom, don’t make
any profits. Free Mobile make profits because the firm has lower costs.



            3. Cartel, Law, and Loyalty


3.1 The mobile cartel


As explained in their press releases of 2005,
the Competition Authority has imposed fines to the three operators operating in
the mobile sector. In fact, they have been sentenced for anti-competitive behaviours.
Orange was fined 256 million Euros, SFR was fined 220 million and, Bouygues
Télécom was fined 58 million. The total amount, 534 million Euros, is the
highest penalty applied by the authority. Two kinds of anticompetitive
behaviours were engaged by the operators. Between 1997 and 2003, the three
operators shared information regarding their activity: the number of new
subscriptions and cancellations were exchanged every month and taken into
account in their marketing strategies. Such behaviour is likely to cause market
distortions by “reducing uncertainties over competitors’ strategies and
diminishing each company’s commercial independence” as stipulated by the Conseil de la
concurrence (2005). The second behaviour was an agreement on
markets shares between 2000 and 2002. The three operators indeed agreed to
stabilize their respective market shares and to simultaneously raise their
prices. The exchange of information was also used to monitor the application of
such agreement and therefore ensure that the collusion was beneficial in the
long run. The economic consequences of the DWL caused by the cartel are
estimated between 1.2 and 1.6 billion Euros (UFC-Que-Choisir, 2006) by the association who handed down the referral to the
French authority.


3.2 Legal entry barriers


Increasing returns to scale are not the only
source of entry deterrence. Public institutions regulate the market
configuration. The French government can directly influence the market by using
his voting rights in the administration of Orange. For instance, in 2016,
Orange and Bouygues were in discussion for a merger but the requirement of the
state in terms of employment preservation contributed to the stop of the
negotiations according to Cassini, S. (2016). By granting licences of operating in the
market, the ARCEP also has a strong regulation power. In fact, the authority
has in 2007 refused the demand of Free Mobile to acquire such licence because
the legal financial requirements were not fulfilled as explained in a press
release of the ARCEP (2007). In addition, the Competition Authority can also
regulate the market in the case of anti-competition behaviours. For example,
the authority gave clearance under certain conditions to the acquisition of SFR
by Altice in 2014 as stated in a press release of the Autorité de la
concurrence (2014). All these cases show that legal entry barrier can have a
relatively important impact on the market organization.


3.3 Consumer’s loyalty


As we have seen, price and quality greatly
affect the market shares. However, deviations from the theory can also arise
through different marketing strategies. To begin with, the four main operators
offer both mobile and fixed services. They indeed try to use their clients’ loyalty
to have them subscribed to the two services. Such client retention is important
because they make economies by treating a client they already have in one of
the two sectors. It explains why Free Mobile offers its unlimited mobile
contract at 16€ for its fixed services clients instead of 20€ (Iliad, 2017)
Other business practices are however illegal. The Competition Authority (2015)
has fined Orange 350 million Euros for anticompetitive behaviours including
“abusive loyalty practices”. The administration has in fact
considered that the commitments implied by its contracts prevented clients to
subscribe to another operator. Finally, one of the specificity of the entrance
of Free Mobile in the market in 2012 is the introduction of very flexible
contracts that do not contain any length commitments. Loyalty was therefore
more based on the quality and price of its offers. These commercial strategies
show that many other variables influence the market shares.


            4. Conclusion


Telecom industry in France has evolved from a
state monopoly to an oligopoly. Because of the cost of the required
infrastructures, the market might never be perfectly competitive. However, from
a social point of view, the sector benefits from such evolution as the
decreasing prices, investment increase, and improved services show. On the
other hand, employment have decreased and several cases show that firms seek to
limit competition through anti-competitive behaviours. In conclusion, public
authorities should use all their resources to efficiently regulate the telecom
market by focusing on social benefits.

 1 Amounts paid for mobile
telephony licences excluded

2 We define market shares
as the number of clients of an
operator compared to the number of clients of the four operators

3 We will use the term price for the Average Revenue Per User (ARPU)
which refers to the total revenue that operators earn each month divided by their
number of clients


I'm Mary!

Would you like to get a custom essay? How about receiving a customized one?

Check it out