August 31, 2012 / 5:50 AM / 7 years ago

UPDATE 1-Iliad's new mobile service boosts H1

* H1 sales up 39 pct to 1.44 bln vs consensus 1.36 bln

* H1 EBITDA flat at 417 mln euros vs consensus 370 mln

* Mobile customer base reaches 3.6 million in six months

* Fixed broadband business helped by mobile buzz

* Iliad’s low-cost mobile service pressuring bigger rivals

By Leila Abboud

PARIS, Aug 31 (Reuters) - France’s new mobile operator Iliad signed up a million customers in the second quarter to take 5.4 percent of the mobile market in only six months and pledged to hit 15 percent share in the “medium term.”

The company, which is the second-biggest broadband provider in the country behind France Telecom, also posted first half results ahead of expectations on sales and operating profit as the mobile buzz boosted its core business of selling “triple play” bundles of Internet, fixed phone and TV.

“We are benefiting from our new status as a fixed and mobile operator with synergies on costs and revenues,” said Chief Financial Officer Thomas Reynaud in an interview. “Now we can fight on an equal basis with our competitors.”

First half revenue rose 39 percent to 1.44 billion euros, while earnings before interest, tax, depreciation and amortisation (EBITDA) remained flat at 417 million euros compared with the same period last year.

Net profit fell by 45 percent to 80 million euros because of the spending needed for the mobile service launch, including the ongoing construction of Iliad’s network and financing costs.

Analysts had been expecting 1.36 billion euro in sales, 370 million euro in EBITDA, and net profit of 71 million euro, according to a consensus given by Goldman Sachs.

France’s established mobile players, which are market leader France Telecom, Vivendi’s SFR, and Bouygues Telecom , have been thrust into a price war since the January launch of Iliad’s ‘Free Mobile’ service.

The challenger offers lower prices and simpler tariffs with two offers at 2 euros for an hour of calls and 60 texts or 19.99 euros per month for unlimited calls, texts and mobile Internet up to 2 gigabytes.

Free Mobile’s customers pay for their own mobiles and can leave whenever they want, foregoing the traditional generous mobile subsidies that operators give on smartphones with one or two-year contracts.

Reynaud declined to provide details on the proportion of subscribers on the 2 euro versus the 19.99 euro plan and repeated only that the break-down was balanced between the two.

Analysts are closely watching the development of the metric since it will determine at what point Iliad’s mobile service reaches profitability.

Asked whether Free Mobile would be able to keep up its torrid pace of client recruitment, Reynaud said it was too early to say anything definitive.

“Our priority this year is to grow our market share, and we are starting to benefit from positive word of mouth from our growing customer base,” he said.

He downplayed the idea put forward by competitors that the upcoming launch of Apple’s iPhone 5, the most expensive smartphone, would slow customer recruitments given Free Mobile’s no-subsidy business model.

“When you succeed in taking more than 5 percent in the market in less than six months, that momentum isn’t likely to stop all of a sudden,” he said.

Iliad also gave an official target for the first time to hit 25 percent mobile market share in the “long-term” without giving specifics on timing.

In the fixed business, first-half sales rose 9 percent to 1.13 billion euros with Iliad signing up 54 percent of new broadband subscribers on a net basis in the period. The EBITDA from the fixed activity also rose 11 percent helped by more customers moving to Free’s newer set-top box with more features and a higher monthly fee.

The good performance of the fixed business is helping Iliad offset the costs of its push into mobile as proceeds with its plan to spend 1 billion euros to build its own mobile network, Reynaud said.

Its EBITDA losses on the mobile business were 44 million euros in the first half, which was roughly half of what analyts had been expecting. (Reporting by Gwenaelle Barzic; Editing by Dominique Vidalon)

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