Iliad Could Be French Consolidation’s Achilles’ Heel
France’s wireless sector could benefit from Altice’s pursuit of Bouygues, but Iliad will also have a say
There is a third wheel in the potential courtship of Bouygues Telecom by Altice’s Numericable.
No bid is on the table, but Altice’s executive chairman Patrick Drahi publicly said last year the company would be interested in buying Bouygues Telecom. With a combined mobile market share of about 43%, a tie-up would bump current leader Orange to second place, according to Raymond James. Shares in both companies rose Monday.
But Iliad, the upstart operator that kicked off France’s mobile price war, appears the linchpin in any deal to consolidate the market from four to three players. Its stock gained more than the potential deal-makers.
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Altice, which holds a 60% stake in Numericable, outbid Bouygues last year in a fierce battle for Vivendi ’s mobile business SFR. But during the bid wrangling, Bouygues agreed to sell some of its network infrastructure and spectrum to Iliad for €1.8 billion ($2 billion) as a nod to regulators in the event it was the chosen buyer.
Losing out on SFR left Bouygues arguably as the most vulnerable of the French mobile operators. The company subsequently announced a 17% cut to its telecoms workforce and tried to stay competitive by slashing the price of cheaper tariffs and offering added services for premium contracts.
Bouygues is seeing some progress. At the end of September, 22% of its mobile customers were enrolled in the more expensive 4G tariff band compared with only 9% the year before. Nevertheless the outlook is tough, with the telecoms business continuing to operate at a loss.
French regulators—wary of more job losses—have indicated they would welcome consolidation. But a tie-up between Numericable and Bouygues would throw up the same antitrust concerns over its network that the latter previously tried to avoid. Any discussion between the two would likely need to cast Iliad in a supporting role to acquire a chunk of the network assets.
As the smallest operator with a 12% market share, and the price aggressor, Iliad could sway regulators. But it is already rolling out its own infrastructure, strengthening its position without rivals’ help.
French mobile subscription rates are among the lowest in Europe, with Orange, SFR and Bouygues reporting negative underlying service revenue growth since 2012, Barclays says. The opportunity for Altice and Bouygues to consolidate France’s mobile market won’t last forever; shareholders are right to cheer them on.