knowledge centre

Broadband tariff increases in France are not as bad as they seem for consumers

Stéphane Piot Partner, Consulting

French broadband users have benefited from nearly a decade of competitive pricing. Recent VAT changes have triggered retail tariff increases that may appear to threaten that, but the impact may not be as bad as expected in the long term.

Since 2002, when the alternative French operator Iliad/Free undercut the French incumbent’s broadband prices by 33% (with a package at EUR29.90/month), the French broadband market has been extremely competitive. The EUR30 level represented the reference point for the market, and since then, operators have competed to offer the best value for money for that price. As a result, in 2006, the OECD stated that the Iliad/Free triple-play bundle was the most attractive broadband offer in OECD countries.

Following a recent decision from the French government to increase VAT on bundle offers, operators have revamped their deals – leading to price increases and product segmentation.

Up to the end of 2010, a reduced VAT rate of 5.5% (VAT for broadcasting services) was applied to a significant proportion of the triple-pay package price (typically
50–60%). However, the French government has decided to apply a uniform VAT rate of 19.6% to the entire bundle, and many broadband operators have repositioned their offers, as outlined below.

  • Increasing current prices: while most broadband operators communicated that they would be passing on the VAT increase to consumers, some increased tariffs by more than the change in VAT rate (or even increased the prices of all their offers, including those not directly affected i.e. bundles without TV components).
  • Introducing new options, such as:
    • TV option – for the same price, the triple-play package becomes a double-play (broadband + telephony) product, and consumers now need to opt in for TV (for a given fee)
    • line rental option – offers provided over a fully unbundled line (meaning the consumer did not have to pay a fee to the incumbent) now incur an extra charge
    • unlimited calls to mobiles – this is being added to the bundle for a fixed fee per month.
  • Introducing new set-top boxes: this is providing an ‘enhanced user experience’ for an additional fee per month (e.g. larger hard disks, built-in
    Blu-Ray drive, improved user interface, Internet browsing on TV).

These offer evolutions are illustrated in Figure 1 below for the three leading French broadband operators.

Figure 1: Evolution of main triple-play offers in France [Source: Analysys Mason, operator data]

Figure 1: Evolution of main triple-play offers in France [Source: Analysys Mason, operator data]

We can notice from the graph a price increase, but, more importantly, a trend towards product segmentation.

The price increase is limited (less than 10%) and even though consumers may be displeased by it in the short term, there is, overall, little to complain about. A 10% increase over nine years is significantly below that of other basic consumer products, especially given the improvements in broadband bundles. And even with the price increase, France remains one of (if not the) most competitive markets for fixed broadband.

Product segmentation is a known economic approach to improve profits by monetising customer willingness to pay more for an improved service. The operator can charge more for enhanced services, as long as they meet users’ higher expectations. This segmentation trend (and users getting used to it) should provide an incentive for operators to invest in fibre-based infrastructure, as they would then be able to charge more for enhanced services provided over this infrastructure (which was not possible with the previous ‘flat-fee, single-price’ structure).

As a result, in the long term, price increases in combination with service segmentation may not be as bad for consumers as they may think: they can look forward to high-speed and enhanced services, in what remains an extremely competitive market.

Analysys Mason is working intensively in the broadband arena, providing support on market assessment, business planning, due diligence, and regulation and policy in developed and emerging countries. For more information, please contact Stéphane Piot, Partner, at