TheChek News Flow

We estimate declines in share prices after the deal collapse means shares

now discount less than a 10% probability of consolidation. Our valuations

reflect a 20% probability. We expect investors will look through 1Q pain

since price rises offer an inflection point into 2Q.

We met recently with senior management of Iliad, Numericable and ARCEP

and also with investors. Investor questions focused on the cause of the

collapse of the ORAN/BOUY deal and what to expect for the market in its

absence. There are two key obstacles to the deal as per statements by

Bouygues: 1) deal execution risk; risk of an operator walking away from a

deal, a particular risk to Bouygues; 2) governance concerns over Bouygues'

stake in Orange that would have come as part the payment. We believe

neither of these issues is insurmountable. We get the impression that

operators see scope for further negotiation on both points. Also, French

unions have expressed concern that the deal collapse could jeopardises jobs.

As time passes, concern is likely to increase that the regulatory jurisdiction

over any deal could move to the EU from France. We had estimated €10-

20bn of net value creation for the French market from the deal.

Following the deal’s collapse, many promotions have been removed. NUM

has raised fixed pricing 3%-10% and mobile pricing 5%-10%, to be

implemented May 1. Bouygues has raised fixed pricing 10%-15% for new

customers. Orange has stated it expects price rises, with scope to expand

its premium in fixed; we think possibly removing its €20 fibre promotion.

Iliad stated it is unlikely to raise headline pricing, but is focused on raising

ARPU through upselling €2 subs to €20. It sees this as a key driver of its

med-term profitability targets. We believe there are multiple incentives for

price rises in France, particularly given the structural challenges facing

Bouygues and as it and Iliad do not generate cash.

We expect growth headwinds due to heavy promotions across the market

ahead of the potential French market consolidation. In this environment,

we expect Orange (due to its premium positioning) and Iliad (as fixed

revenue growth accelerates)to fare better than Bouygues and NUM.