Market Watch

Free Telecom Unbundles TV Services to Beat VAT Increase


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French telco Free Telecom has responded to the VAT hike on triple-play services by unbundling its TV service. From February 2011, Free Telecom will offer its basic TV package as an optional service for €1.99. Freebox customers will be able to activate the subscription for a month, with no minimum contracted period. Despite the price rise, the basic TV package will not be changed, offering DVR functionality, video-on-demand services and blu-ray playback (to customers with the latest generation Freebox).

Analysis
In October 2010, the French National Assembly decided to increase VAT on all components of triple-play services to 19.6 per cent from the 5.5 per cent previously charged for the TV component of any bundle. While other providers have opted to simply pass on the VAT tax burden to all their triple-play customers, Freebox broadband and telephony customers not wanting TV will benefit from Free's unbundling of the TV services, as they will not be liable to pick up the costs for the new higher VAT rates. Instead, only those consumers wanting TV will face the additional cost of €1.99 if they choose to activate the TV services.

The unbundling of services will affect both new and existing Freebox customers. Existing customers will be informed of the changes by 20 January 2011, and will be given the option to unbundle or switch-off their TV service. Subscribers who decide to continue with a bundled package will see a rise of €5.99 per month to their subscription; however, as part of this Free will be offering unlimited calls to mobile phones.

Free Telecom has decided to impose an additional cost of €1.99 for TV services to consumers rather than an across-the board VAT hike. The option to take TV as an additional service with no minimum contract period would enable consumers to have some control over payments and ensure the burden of cost remains with TV customers and not fall across the highly price-sensitive broadband and telephony sectors. Move will ensure that triple-play remains priced competitively against that of rival providers, but Free's dual play will become cheaper than rival triple-play packages (TV has largely been a free add-on to double-play in the past).

Free Telecom is the only pay TV provider to have taken these measures. Other pay TV operators, including major competitors France Telecom and SFR, have announced price increases on triple-play packages of between €1 and €3. Numericable has settled on an increase in subscription prices of up to 3 per cent. Bouygues Telecom has not yet released a decision on whether consumers will bear the burden of the VAT increase.

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