A topic that I’ve been following closely over the summer despite a relatively lackluster press coverage in non-French speaking media is the attempted bid by Iliad on T-Mobile US. This is interesting to me for a number of reasons, one being that I have long spoken of the potential for an Iliad-style disruption in a number of markets (including the US), and another one being that I know Iliad well, and I know the US market reasonably well. This is really me musing on whether Iliad could make it work more than anything.
I won't go into valuations and other financial aspects that might allow Iliad's bid to succeed or not. My gut feeling at this stage is that with the removal of the competing Sprint bid, they are well positioned, particularly if they get a consortium of investors around them, but I'm too far removed from pure financials to have a viable view on that.
The more interesting question (to me) is, assuming the bid is successful, can the industrial project be successful? The financial markets clearly seem to think not, or at least seem to think that it's very uncertain. Iliad's valuation has taken a serious hit as a consequence of the bid being announced.
One thing is for sure: the initial instinct that got Niel (Iliad's founder and CEO) interested in T-Mobile US is correct: the US market is ripe for price disruption, with ARPUS two to three times higher than European averages and there is no reasonable explanation as to why costs would be two to three times European costs in the US. Iliad successfully entered the French market as a low-price competitor by building a lean operation in an environment where margins were already much lower than in the US. The opportunity is clear.
The thing that many people don't understand about Niel is that he's one of those entrepreneurs who is still willing to take risks. I would actually argue that he thrives on risk. Financial and industry analysts are trying to read Iliad's bid within the framework of industry accepted practices, but I believe that's the wrong way to look at it, especially in the US where price competition has been very limited due to the oligopolistic nature of the market. The right way to look at it would be to try and anticipate all that an Iliad owned T-Mobile could offer end-users that nobody expects. What could they give away for free that everyone in the industry agrees has to be paid for? What could they radically simplify in terms of portfolio, distribution, etc. Which partnerships could they strike that would open up possibilities for visibility and commercial success.
This isn't so much about replicating the French success as it is about bringing in (and hopefully transitioning the existing teams to) a radically different culture, one of lean disruptiveness. That's what Iliad would be bringing to the table. And unlikely though it sounds, it could very well work. It's worked in the past, multiple times. I'm not underestimating the cultural challenges here, but I do think with Niel you need to keep your mind open to the fact that his success might surprise you.
Still, the biggest challenge here is that Iliad isn't starting from scratch. Every success of Iliad's in the past was built from the ground up. The only failure they had to deal with was their acquisition of Telecom Italia's French subsidiary Alice. In the case of T-Mobile, Iliad announced that $2bn of savings per year could be generated, and they may very well be right. But there's a long way between identifying where money can be saved and actually restructuring to save it. And it's a very different thing building a super-lean operation from a clean slate and turning an organisation with the kind of technical, organisational and cultural legacy that T-Mobile US has into a similarly lean outfit. To me that is the greatest challenge: not only in transforming the company's culture (hard enough as it may be) but in trimming down the company to the lean operation they think they can turn it into.
Still, I hope it happens, because it's going to be super-interesting to watch, and because I'd love to see the US incumbents quake with fear once they realize that someone is operating the same type of business they have at a fraction of the cost, and it's working...