* France's new mobile player Iliad shows low-cost path
* Netherlands sets aside spectrum for new mobile operator
* Seeks more competition in going from 3 to 4 carriers
* Liberty Global, Ziggo, Tele2 seen as possible bidders
* KPN in firing line in mobile pricing reset
By Leila Abboud and Robert-Jan Bartunek
PARIS/BRUSSELS, Sept 14 The Netherlands could be
heading for a mobile phone price war similar to the one that has
ravaged industry profits in France, with an auction of wireless
licences next month likely to ramp up competition to market
leader KPN (KPN.AS) and its rivals.
The Dutch government has set aside spectrum for new entrants
at the Oct. 31 auction in a bid to boost choice and lower prices
in a country with 19.6 million mobile phone subscriptions - more
than one for every head of population.
While good news for consumers, the arrival of one or more
new players is likely to force incumbents KPN, Vodafone (VOD.L)
and Deutsche Telekom (DTEGn.DE) to cut tariffs in what is
currently one of Europe's most lucrative mobile phone markets.
The experience of the French industry does not bode well.
There, cut-price newcomer Iliad (ILD.PA) grabbed 5.4 percent
market share in just six months, launching a price war that has
hammered profits at established firms France Telecom FTE.PA,
Vivendi's SFR (VIV.PA), and Bouygues Telecom (BOUY.PA).
"Iliad in France has redefined what is possible when you
launch in a mature market," said Will Draper, an analyst at
Espirito Santo investment bank.
"It almost won't matter whether the new entrant is
successful or not, the key thing is that it will create a domino
effect, forcing KPN to cut its mobile pricing severely."
Analysts predict mobile profit margins in France will
decline from a mid-30s percentage to the mid-20s in the coming
years as incumbents battle to compete with Iliad, whose "Free
Mobile" service offers lower prices for more generous allotments
of texts, calls and mobile Internet.
Potential bidders for the new Dutch licences are familiar
faces in the country: cable companies UPC, owned by Liberty
Global (LBTYA.O), and Ziggo ZIGGO.AS - which already have
strong shares in broadband and pay-TV - as well as virtual
mobile operator Tele2 (TEL2b.ST).
None have detailed their plans because of auction rules that
forbid bidders from speaking, but analysts expect there to be at
least one new entrant.
Two unidentified companies indicated they would bid on the
two blocks of 800 megahertz spectrum reserved for new operators,
according to the government agency running the auction.
ING analyst Jeffrey Vonk predicted UPC and Ziggo could team
up on a joint bid, but doubted Tele2 would jump in given signals
from the group's recent strategic announcements.
"Tele2 wants a number one or number two position in its
markets and 35 pct profit margins, and I don't think that's
possible in the Netherlands," he said. "UPC and Ziggo have
Dutch mobile market graphic: link.reuters.com/pys62t
How bad the Dutch market gets will largely be determined by
how aggressive any new mobile operator is in building a national
network and on price at launch sometime next year.
A new entrant would have plenty to aim for.
Dutch consumers pay Europe's second-highest mobile prices
after Malta, according to data from the European Commission. The
country used to have five mobile operators, but that has
consolidated down to three.
An analysis by telecom regulator OPTA found competition from
"virtual" operators like Tele2 - which rent capacity rather than
owning a network - was insufficient and the risk remained that
incumbents could quietly agree to keep prices high.
In the second quarter of 2012, KPN collected 36 euros a
month from its Dutch mobile customers on a contract, compared
with only 21 euros at its German unit E-Plus.
KPN, a former state monopoly with about 45 percent of the
Dutch mobile market, has said little to date about how it plans
to cope with fresh competition. The group has already seen
mobile profit margins erode by 4 percentage points in the past
year as Dutch customers increasingly turn to free software on
smartphones to avoid paying for texts and calls.
Some analysts think the group, which is 28 percent owned by
Mexican telecoms tycoon Carlos Slim and has seen its shares drop
28 percent this year, could take its cue from the better
performing incumbents in France and pre-emptively cut prices and
offer unlimited mobile data plans.
"France Telecom did most of this. SFR and Bouygues were very
slow, which is why they are suffering more now," said Espirito
SFR expects operating profit to fall 12-15 percent this year
and is cutting hundreds of jobs to save 500 million euros by the
end of 2014. Bouygues is axing 556 jobs to save 300 million.
Antonios Drossos of Rewheel, a consultancy that has advised
challenger mobile operators in Britain, Poland and Hungary,
agreed that failing to react to the lower prices of a newcomer
could prove costly.
"The enterprise value destruction caused by a successful new
entrant like Free is far greater than the cost associated with
embracing an unlimited mobile internet," he said.
But some industry observers and executives see Iliad as the
exception and remain unconvinced that late-arriving players can
really make money, pointing to the experience of Hutchison's 3
brand in Britain and Italy, and Spain's Yoigo which spent years
to win clients and break even.
(Editing by Mark Potter)
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