France Telecom will not match the low-cost mobile offers recently launched by new operator Iliad because such aggressive pricing would be bad for network quality and innovation in the long-run, said its chief executive.
France Telecom's (Paris) Chief Executive, Stephane Richard, criticized a race to the bottom on mobile prices and attacked what he cast as his competitor's reckless approach.
"The real risk is that all the operators become 'low-cost', meaning less investment, fewer services and jobs," he told France's Journal de Dimanche. "We will never match prices because we offer security, reliability and innovation."
Richard's comments come at a turbulent time for Europe's third-largest telecom market where the existing players, former state-owned monopoly France Telecom , Vivendi's SFR (Paris), and Bouygues Telecom (Paris), are scrambling to defend their turf and profits from new arrival Iliad (Paris).
Iliad, which markets its services under the name Free, touched off a price war on January 10  with an offer of unlimited calls to France and most of Europe and the United States, unlimited texts, and 3 gigabytes of mobile data for $25.83 per month.
Since the price does not include a subsidized mobile phone, customers are not locked into long contracts.
France Telecom and Vivendi reacted by cutting some mobile prices but only on the offers sold without phone subsidies and contracts. Bouygues was the only operator to replicate the Free offer exactly; the other two players remain a bit more expensive for comparable offerings.
To date, the incumbents are pursuing a strategy of limiting their price cuts to budget options, which are sold only online and do not come with subsidized phones on long-term contracts. Such deals, known as SIM-only offers, account for only a small sliver of the overall French market.
"The telecoms business requires heavy investments and high-level of skills," he told the paper. "Our friends at Free will soon realize this."
Some analysts predict that France Telecom, Vivendi and Bouygues will all become structurally less profitable as Iliad takes market share in the coming years. Goldman Sachs forecasts that Iliad's mobile entry will cause France Telecom to lose a third of its operating profits in its all-important domestic market by 2015. Vivendi and Bouygues are also exposed. Vivendi earns half of its operating profit from mobile in France, while Bouygues earns a third.
(Reporting by Leila Abboud; Editing by Rodney Joyce)