How Free Mobile is already driving data prices down in France

The January launch of — a disruptive new French carrier — was expected to send shivers through the country’s mobile industry. The basic idea behind the company, masterminded by serial entrepreneur Xavier Niel, is that it can radically reduce mobile costs by offloading traffic over Wi-Fi where possible.

It’s a simple, audacious concept that’s technically hard to execute — but so far it seems to have been pretty successful, with the business opening up a network of 4 million hotspots around big French cities in April and putting on a record 2.6 million subscribers in its first quarter of operations.

And while rivals may suggest that it’s just a temporary blip as users change provider and then return, the reality is that they’re hurting. Those 2.6 million users have to come from somewhere, especially when you consider that subscriber numbers across Europe are flat or declining.

More evidence of the impact that Free is having came on Wednesday as Orange (s FTE), France’s biggest network, announced that its own low-cost packages would be massively altered to bring them into line with Free’s offering.

Huge price cuts from Orange

From Thursday, users of its “Sosh” branded mobile internet services can now get 3GB of data each month for €19.90 — that’s $24.80 — almost exactly the same as Free offers users. Sosh is not really a mainstream Orange product, and it’s only sold online, but it was launched last year as a spoiler product to Free, so it’s definitely worth using as a benchmark.

La Tribune reports that this is a precipitous fall from when the Sosh packages were first launched last year — and that Orange has been forced to take a more aggressive approach:

Compared to the initial offers unveiled in September 2011, the price drop is impressive: Sosh then proposed 1GB and unlimited for €39.90. It is now offering three times more data for less than 37 percent of the original price. […] Meanwhile, Sosh will stop selling its package at €14.90 (2 hours of calls and 1GB) and replace it with a subscription to €19.90 euros including unlimited calls 24 hours a day, becoming the new standard in the market, and 2 GB of data, which will be better able to compete with Free Mobile package.

The irony is that Orange is, in part, responsible for Free’s rise. The two companies have an agreement that lets Free buy airtime on Orange’s 3G network, which has caused consternation at the France Telecom-owned business. Statistics suggest that around 88 percent of traffic is going across Orange towers and just 12 percent of users are actually connecting to a Free antenna.

You could take this as proof that the pain of losing 615,000 customers to Free is somewhat mitigated — but the truth is that it has Orange worked up. More detail should become apparent later this week when Free announces its second quarter numbers.