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10/01/2012

How France’s Free will reinvent mobile

By Om Malik.

Xavier Niel, the maverick founder of Iliad, the company behind Free.fr broadband service is about to redefine the mobile landscape, perhaps as early as tomorrow when he launches the much-talked about Free Mobile.

In doing so, he will redefine what is the idea of a carrier in the 21st century thanks to a radical new approach. Utilizing a blend of Wifi, HSPA+ 3G, Femto cells and its all-fiber backbone, Free will offer unlimited voice, texting and data over the mobile networks. Just bring your own iPhone. But before I get into the details of his new company, let me back up and tell you about Iliad and Free.fr.

Set it Free.fr

In December 2007, while attending Le Web in Paris, I snuck out to visit Niel, the man behind Iliad, a Paris-based phone service that owned many entities including its most well known offering: Free.fr, a broadband service that offered phone (VoIP), video (IPTV) and broadband for a simple flat monthly fee. A simple low monthly rate was possible because of the network he owned and the technologies he used. Here is what I wrote then:

By offering a flat-rate, high-speed Internet connection for 30 euros ($43) a month. That gives Free.fr’s three million subscribers a connection speed of roughly 28 megabits per second over DSL, free IPTV (and a free set-top box), a free Wi-Fi hub, and unlimited voice calls to some 70 countries.

“We are a broadband service provider,” was his matter-of-fact reply. “Everything else — from voice to IPTV to storage – is just a feature that rides on this data service.” For the rest of the telecom industry, long addicted to metered minutes and billable items, this is rebellious thinking.

Niel, who had started Free in 1999, bought a lot of dark fiber from carriers who had gone bust around the turn of the century and built an IP-only network that snaked across France. The unbundling of the telecom loops had given the necessary push to offer fast DSL and use the broadband pipes to offer different services. The flat fee model would force the incumbents – France Telecom (now Orange) and other competitors to follow suit. They too started offering simpler rate plans.

Going Mobile

In the four years since I first met him, Niel who is now 44 years old, is much more wealthier than he was in 2007. The number of subscribers on his Free.fr service have grown to five million. But his big bet on fiber hasn’t paid off — just yet. With the wireline market saturated, Niel started eyeing more opportunities – especially in the mobile arena.

Free.fr is under pressure from the quad-play offerings – broadband, mobile, VoIP and video – from three of its major rivals France Telecom, Vivendi’s SFR and Bouygues Telecom. The company needs to respond by its own quad-play offering. To be fair, Niel saw it coming a long time ago and had applied for mobile licenses back in 2007. and Free Mobile was awarded a license in December 2009 at the cost of 240 million euros. The company also signed up a roaming agreement with Orange to cover most of the service.

And now the mobile service is ready. There are few details available and Niel is keeping his cards close to the chest. In December 2011, once again I ducked out of Le Web and visited Niel in his offices in the 8th Arrondissement, a chic business district. He has moved next door from his old office having taken over a massive building with a lovely rotunda. It is befitting the growing stature of his company and the main himself. However, inside his offices, nothing much as changed.

About three dozen engineers form the brain trust of Free.fr, inventing new features for the service. Five guys who built the software and a few others who hacked together the hardware are standing by the side as the boss man gives the demo. It was just like 2007 — as if nothing had changed.

For about 45 minutes Niel gave me demo of his set-top box: which is everything a modern connected home needs- broadband modem, wifi router, storage center, a blue-ray player, web-surfing device and a game machine. And while it might not have the Apple brand, you could see who had inspired the Free’s set-top box. Why it was even able to playback music from my iPhone using AirPlay.

Set-top Box = Stealth Weapon

“Since it is our own set-top box, we can innovate around it,” he says. “In the US, they buy their set-top boxes from other providers.” And that is a mistake and lost opportunity, Niel says and proceeds to outline how pivotal these set-top boxes are for his company and its future.

For example, Free.fr used the set-top box for automatically sharing a portion of one’s broadband connection via WiFi with other Free.fr customers. Over five million set-top boxes means that Free.fr has a a free WiFi cloud enveloping major cities such as Paris. Even when away from home, you can easily get broadband while resorting to expensive 3G network.

This Free.Fr free wifi network is going to play a pivotal role in the soon to be launched service, which will be using 42 Mbps HSPA+ technology. The company has built a network of 15,000 macrocells, but those 5 million “nano cells” are going to be the key difference maker, Niel points out.

Free.fr’s newer set-top boxes will have built-in femto cells. On top of that, Free is going to be beefing up its macrocells with high-capacity fiber connections being fed by Iliad’s dark fiber. And when time comes, he is going to embrace LTE and include that into his network as well. “We will go to wide area network (3G and 2.5 G) when we are not in WiFi coverage,” he tells me. (I got a sneaking suspicion that Free would be pushing iPhones into the market pretty heavily.) If they pull it off, it is going to be pretty spectacular and once again show what telecom of tomorrow looks like.

I couldn’t help but notice that in 2000, he roped in Cisco, then desperately trying to get a toe-hold in the broadband market to help him with the network buildout. This time, he got an equally desperate Nokia Siemens Networks on the hook.

Mobile Money

When I ask him about the price, he demurs. “It will be cheaper than the current market price,” he adds. So how is he going to make money? The answer comes in a throwaway comment he made when we are sitting around talking. “In your pocket you have three things – your keys, your phone and your wallet,” he says. “I think of those three only one will remain – your phone.”

He believes telecoms should charge for access and make money by selling the ID and payment services, not voice and SMS. It is one of the reasons he loves Square, Jack Dorsey’s payment company where he is an angel investor. “It is crazy to pay for voice by the minute as voice is so cheap,” he says. Even SMS texting is a lot of money and he finds that crazy. “We are trying to be the cheapest mobile service in France,” he adds. Don’t be surprised to see Google Voice type services built into the service itself.

“Free has had a reputation as a trendsetter who understands the clarity consumers demand,” adds Rudolf van der Berg of OECD, a global telecom group. ”Splitting the cost of the phone from the subscription simplifies things greatly for the consumer and might be a trend worth following. Certainly from a consumer rights perspective this is to be applauded as many offers from mobile phone company.”

According to some rumors the service is said to cost 30 Euros a month with unlimited calls to 100 countries, unlimited data and unlimited SMS (20 euro if you also have broadband.) “What it really does is make both data and voice usage completely irrelevant to consumers. How much do you call per month will be as interesting a question for your bill as, how many e-mails do you send per month,” says van der Berg.

“We have a different view of things because we are telecom with an Internet startup’s model,” Niel says. So far it is working. The company has sales of $2.8 billion and makes nearly a billion dollars in profits. For now it might seem good, but Niel knows that he has to continue out-innovating his rivals.

So what comes next?

For now his boffins are working on new 10 Gbps gear so that he can support the network upgrades he envisions. In three years from now, as network starts to support HD and 3D video streams, the pipes to our homes would need to have connections of around 1 Gbps. Niel points to the growing quality of televisions and points out that HD streams are going to have to get better. “We as a company have to begin now,” Niel says. “You don’t stand still and sell a product after the fact. We want to get people to use it.”

For now, Niel wants to get 20 million folks to use his mobile service.

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