Iliad’s Free Mobile, the new French mobile operator, is suing larger rival SFR, claiming the Vivendi-owned network’s handset subsidies constitutes unfair competition.

Free filed the complaint in a Paris court in May, a spokesperson told Bloomberg yesterday, confirming comments made by Iliad founder Xavier Niel in a magazine interview.

Speaking to Capital, Niel argued that SFR’s handset subsidies, which are offered as part of one or two year phone contracts, is effectively a consumer credit agreement that is not bound to the normal credit laws, charging “usury rates of 300 to 400 percent that consumers don’t see.”

SFR has not commented on Free’s action and it is not clear if Free will also file complaints against Orange and Bouygues, which offer similar deals.

Free Mobile launched in France at the beginning of the year offering tariffs that significantly undercut the three incumbent players – but it is not subsidising devices.

The disruptive operator racked up 2.6 million subscribers in its first 80 days, with many customers churning from rival French networks.