Can France’s Free keep its wireless revolution going?

The first official casualty reports emerged this week in Free Mobile’s price war against Frances’ mobile powers that be. France Telecom’s(s fte) Orange reported a 615,000 subscriber loss, or 2.3 percent of its total customers. People are flocking in droves to Free’s ultra cheap voice and data plans, but there are also signs that the upstart operator will have trouble keeping its wireless French Revolution raging.

FT reported another interesting metric in its first quarter earnings. While the flight to Free is pressuring its profits, revenues and margins, Free’s owner Iliad is also making a substantial contribution to Orange’s wholesale roaming business. Iliad has only built a limited 3G network of its own, so to fill in the gaps it relies on an MVNO agreement with Orange. Orange originally expected its roaming agreement with Iliad to bring €1 billion (U.S. $1.3 billion) over five years. Now Orange expects to see that first billion in just two years.

Apparently Free has resorted to buying a lot more capacity than it expected – or at least more than FT expected. Meanwhile, financial firm Jefferies believes that FT’s lower-than-expected decline in revenues for the quarter indicate that many of its subscriber losses were among budget customers lured by the Free’s lowest price €2 a month plans. If that’s the case, Free could find itself in a predicament: it may rake in new customers, but the costs it incurs from buying all of that 3G capacity may outstrip its revenues. We’ll know more when Iliad, reports its first-quarter numbers.

As long Free can keep up the pressure, though, there’s no question that it will continue to upend France’s normally staid wireless industry. Though the initial mad dash to Free appears to be over – and even shows signs of reversing — analysts project that Bouygues and Vivendi’s SFR will report similar big subscriber losses in the coming weeks. The Big 3 have all started cutting their rates to counter the Free threat. Vivendi has brought in a new CEO from Vodafone to head up SFR(s vod), while Bouygues is buying up one of Free’s smaller competitors, Darty Telecom, an IPTV and residential broadband provider that also offers mobile services as an MVNO.

Free Mobile still has a few tricks up its sleeve though. Last month it activated a critical component of its strategy, turning 4 million Wi-Fi access points embedded in its wireline customers’ set-top boxes into a private mobile offload network. While the network is limited to Iliad’s customers homes, offices and their vicinities, such a huge density of Wi-Fi could move massive amounts of data traffic off of HSPA+. That would not only conserve its own 3G capacity but potentially spare Free from relying so much on its Orange wholesale agreement.

Image of Eugene Delacroix painting courtesy of the Louvre