Orange “Sosh” Illustrates Competitive Challenge, and Range of Responses

Mobile and fixed network service providers are, by now, used to competition. And, by now, there are some standard competitive responses to new competition, in either the mobile or fixed services realm.

Typically, incumbent service providers are attacked on the pricing front, the reason being that the simplest of all value propositions for a customer is “same product, lower price.” So the easiest marketing position for a challenger to take is “same product, lower price.”

Typically, mobile service providers respond by creating new “value” brands that attempt to protect pricing for the mainstay brands, while allowing the new value brand to compete head to head with lower-cost competitors.

Sometimes it works better than others, though. In France, Orange has found that its initial assumptions about what is required to compete with Illiad’s “Free” service have been inadequate. That seems to be the case right now.

Sosh, sold only online as a way of creating differentiation and controlling sales cost, has boosted account data buckets for its top offer to 3 GBytes, to match Free’s offer, and also creating new price plans that better align with Free’s offers.

The Orange packaging changes come as Sosh adapts to a pricing attack that has been more vigorous than anticipated. The other French mobile leaders, including Bouygues Telecom and SFR, also have had to adjust to Free’s attacks by crafting their own value brands or changing retail packaging.

In this case, the leaders are trying to contain the pricing damage by creating value brands that compete with Free on price, while generally protecting the existing prices of the original brands. The longer term issue is whether that strategy is sustainable over the longer term.

The danger is that, at some point, the pricing expectations change so much that the original brands have to lower prices as well. So far, Orange appears to have been quite surprised by the vigorous Free pricing.

Compared to the initial offers unveiled in September 2011 by Sosh, the latest price drops at Sosh are significant. Sosh initially offered 1 GByte buckets of usage for 39.90 euros. Sosh now offers is now three times more data for less than 37 percent of the original retail pricing.

So far, the pricing umbrella has dropped only for the major mobile carrier “value” brands. The bigger issue is how long it might be before general end user expectations about value and price change enough that even the original brands must respond to the price pressure.

In the fixed network realm, the choices generally have been more limited. Mobile service providers can choose to offer different devices, can sell postpaid or prepaid and can change service features about as easily as they change devices. That's one advantage of running a business where so much of the feature set is "at the edge."

Mobile service providers also have found it easier to create wholly new value brands around customer segments.

In the realm of voice services, for example, most telcos seem to have concluded that it was not feasible to create some sort of "value" voice service directly competitive to over the top VoIP. So the decision generally has been to allow some loss of market share, in order to maintain pricing and margin for the remaining units sold.

In the case of high speed access, telcos in the U.S. market, for example, did not respond until it was clear that a new product category had been created, that legacy special access services really would not be damaged by substitution and that the telcos would lose huge amounts of that market to cable and other competitors if they did not jump in.