Author(s): Raghu Gopal
Consolidation within the French market has been sporadic over the years. There's now news of a potential acquisition that could see the market to reduce from four to three mobile operators.
Orange has confirmed recent rumours that it is in talks to acquire local competitor Bouygues. The negotiations coincide with an apparently softer approach by the government toward sector consolidation. In 2015, the French government — which owns about 25 percent of Orange — opposed a €10 billion ($10.8 billion) bid for Bouygues Telecom by Numericable-SFR. In 2014, Orange held three-way talks with Bouygues and Iliad regarding a consolidation deal that was encouraged by the government, but this collapsed over valuation.
Regulatory scrutiny will be a major stumbling block to any deal. CCS Insight estimates that the combined market share of Orange and Bouygues would stand at over 50 percent, compared with SFR's 25 percent and Free Mobile's 17 percent. Orange would have a dominant position, and so significant concessions such as divestment of spectrum, retail stores or other assets would almost certainly be placed on any deal. This could lead to intense and complicated negotiations with Free Mobile and SFR over jobs, investment in infrastructure (particularly in fibre-optic networks) and antitrust-related disposals.
Last week's news will be welcomed by Free Mobile and Numericable-SFR, as the elimination of a competitor strengthens their positions in the French market. Orange said on Tuesday that there was no time limit on talks "with a view to a consolidation with Bouygues Telecom", and no commitment to a particular outcome.
CCS Insight believes that France is ripe for mergers and acquisitions given the high level of competition triggered by Free Mobile. The disruptive entrant launched in 2012, having quickly turned one of Europe's most lucrative markets into one of the most challenging. Previous talks between French operators aiming to bring consolidation to the mobile sector have floundered, and there's no guarantee that this deal will be consummated.
However, CCS Insight predicts that the European market will become more consolidated as key players look to grow across borders to spread costs and expertise. Mobile penetration rates in all Western European countries are well above 100 percent, with limited opportunities for net additions. Consolidation across Europe to maintain profitability levels and support expansion into new technology generations is inevitable.