Sunday, May 12, 2013

"We are trying to change the mentality in France" says entrepreneur who rails bluntly against the country’s established classes

Xavier Niel is not what you would expect in a billionaire
writes Kevin J O'Brien in the New York Times.
Mr. Niel, the French Internet entrepreneur, is a slightly disheveled 45-year-old fond of jeans and open-collared shirts. He is a high school graduate from a working-class Paris suburb who rails bluntly against the country’s established classes and a business elite culled from a handful of grande écoles — elite educational institutions. 

But over the past two decades, Mr. Niel has amassed a net worth estimated by Forbes in March at $6.6 billion, emerging as France’s most influential technology entrepreneur, an opportunistic, controversial visionary whose low-cost Internet service provider and mobile network have made the Internet affordable for millions of French consumers. 

To many struggling in France’s stagnant economy, Mr. Niel is a hero. But to a French business establishment grappling with the competitive disruptions of the Internet — not to mention the same stagnant economy — he is an unwelcome threat, a destroyer of profit margins. 

“He represents the Internet world and the Internet economy, something that is not really appreciated in France,” said Cedric Manara, a law professor at Edhec, a business school in Paris. “He is not one of them. He represents what scares them — the big battlefield between the old and new economy.”

Mr. Niel says his goal is no less than to instill a Web-based entrepreneurial culture in France. 

If people like us don’t start to change things in France, nothing is ever going to change,” Mr. Niel said. “Today France is the fifth-largest economy in the world. But if we don’t change things, we will be the 25th biggest in just 10 years.”

 … In 1993, when he was 25, Mr. Niel created France’s first Internet service provider, WorldNet, which he sold seven years later, just before the dotcom bubble burst, for more than $50 million. In 2002, his second Internet service business, Free, sold the world’s first triple-play package of phone, television and Internet. The Freebox service cost just €29.99 a month, or about $40 at current exchange rates, about a third less than the going rate. The triple-play would not arrive in the United States until three years later. 

Free has since added a Blu-ray disc player, a digital recorder and unlimited domestic mobile calls to the Freebox package, but it still has not raised the basic price. The company is France’s second largest Internet service provider, behind Orange, owned by the former telephone monopoly, France Télécom.
But the ISP business was only a warm-up. In January 2012, he created Free Mobile, which became France’s fourth cellphone network operator. In another break with convention, Free sold a no-strings-attached SIM card service with unlimited calls, text and Internet for €19.99 a month, less than half what the other three — Orange, SFR and Bouyges Télécom — had been charging. 

This came after the three bigger operators had tried unsuccessfully to persuade the European Commission to block Free’s mobile license. Since its inception, Free Mobile is estimated to have cost the top three operators millions in profit, as all created new, lower-cost plans to compete. 

That does not bother Mr. Niel too much. In December, the French competition regulator, Autorité de la concurrence, fined Orange and SFR, which together have about three-quarters of France’s mobile users, €183 million for abusing their size by offering free on-network calls to their own customers since 2005. 

The operators are appealing the ruling. But for Mr. Niel, who spoke during a wide-ranging interview on the top floor of his headquarters in central Paris, the case was another example of the cartel-like relationship among industry leaders that pervades the French economy and in which profit trumps the needs of consumers

Free Mobile signed up 5.2 million customers during its first year of business, grabbing almost 8 percent of the French mobile market. Sales reached €844 million but the business generated a €46.1 million loss in 2012 before interest, taxes, depreciation and amortization. The new enterprise increased annual revenue at Mr. Niel’s holding company, Iliad, by 49 percent to €3.2 billion last year. Iliad had a market capitalization Friday of €10 billion. 

“Our goal is to bring Internet to everyone in France,” he said, speaking in a heavily accented English. 
But in parts of France, Mr. Niel remains controversial.

 … For 10 years, Mr. Niel has been investing tens of millions of euros in technology startups. Each week, his venture capital company, Kima Ventures, invests in two more. Some of the money goes to French companies like Deezer, the streaming music service, but much has also gone to U.S. start-ups, like Square, a maker of free credit card readers for the iPhone, iPad and Android devices that is based in San Francisco. 

Last month, Mr. Niel announced plans to open a tuition-free Web developer academy for 1,000 students. He has received 10,000 applications from students, each of whom spent four hours filling out a test of computer logic posted on the Web. 

Tellingly, the test did not ask applicants for their academic credentials. Mr. Niel said he was looking for people like himself — qualified, but unprivileged and lacking the right connections — to give them a leg up. 

“We are not just trying to change business,” he said. “We are trying to change the mentality in France.” 

 … As Mr. Niel’s influence and public stature grows, some are worried he may become a part of what he hates — the establishment. They point to the fact that in 2010, Mr. Niel was one of three investors who bought a controlling interest in Le Monde, the country’s flagship daily newspaper. 

“I think secretly he wants to become part of the establishment,” said Mr. Godard, the Enders analyst.
Mr. Manara, the Edhec professor, said he was not so sure. 

“In France, we like to burn our idols,” Mr. Manara said. 

Mr. Niel said he had no desire to join the establishment. He ruled out pursing a political career.
“I like being an outsider,” he said. “It is better in France on the outside.”