The report is likely to spark criticism from Iliad's larger rivals - France Telecom, Vivendi's SFR, and Bouygues - which have at times accused the newcomer of not investing enough to build its network.

The French government is studying the issue to determine whether Iliad, which has touched off a wave of layoffs and price cuts at larger competitors, is fulfilling the obligations laid out in its mobile license. It had asked France's ANFR, the agency responsible for tracking radio spectrum usage, to audit Iliad's network.

Iliad launched its "Free Mobile" service in January 2012, sparking a price war with its low-cost plans and taking 6.4 percent of the market by the end of the third quarter.

"Free deployed its network first in less dense areas, then in cities, where it is harder to install antennas because of permitting issues," said Fleur Pellerin, junior minister for the digital economy, in an interview with Les Echos.

"We will be very attentive to the progress of these deployments because the proper functioning of the market requires everyone to invest."

An Iliad spokeswoman declined to comment.

The average amount spent by French mobile users fell 13.7 percent to 21.60 euros ($28.83) per month in 2012, according to data from the telecoms regulator, as the impact of Free Mobile's lower prices spread.

According to Les Echos, Iliad also put out a request for bids in December to search for a new supplier of third- and fourth-generation mobile equipment.

That move may deal a blow to Nokia-Siemens Networks, which has been supplying mobile gear to Iliad for the past two years. It could also open the door for low-cost Chinese equipment maker Huawei to win new business in France, where it sells gear to SFR and Bouygues.

(Reporting by Leila Abboud; Editing by Dale Hudson)

• A Permanent Economic Emergency