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Mergers & Acquisitions

Orange/Bouygues talks and new roaming rules: France’s turmoil goes on

The new year kicked off with the European M&A merry-go-round still spinning, as BT and EE received approval for their merger in the UK, Nokia and Alcatel began joint operations, and Orange confirmed that talks were back on with Bouygues in France.

The turmoil that ensued when Iliad’s Free entered the French mobile market in 2009 and launched its mobile service in 2012 has been well documented. Now the proposed Orange-Bouygues merger, valuing Bouygues at €10m ($10.89m), has sparked more unrest in the country’s market. If the deal were to gain approval it would give the combined entity 39.8m mobile customers, with around 60% market share. Free has 11.3m mobile customers and 6m fixed lines, while Altice-owned Numericable-SFR has 1.66m cable subscribers, another 4.7m on fiber and DSL, and 15.2m mobile users.

Amid speculation over whether the merger would be handled by French competition authorities or by the European Commission, sources said this week that the investigation would be carried out on home ground – as two-thirds of Orange’s revenues come from France. It is thought this would improve Orange’s chances of receiving the seal of approval, as the EC is renowned for pushing for a more competitive market to keep consumer prices down. This was evident last year when competition commissioner Margrethe Vestager placed such high barriers in the way of a proposed merger in Demark that Telia and Telenor backed away. Like Orange-Bouygues, that would have reduced the number of MNOs in the country.

The French competition authorities are likely to lean in favor of strengthening Orange and defending jobs, but would almost certainly insist on getting Orange below 50% market share, which could be enough to deter the incumbent altogether. This week Orange revealed that it was in asset sale talks with Numericable-SFR and Iliad, regarding a portion of Bouygues’ spectrum, customer base, network assets, and retail outlets. This asset sale could play a significant factor in swinging regulatory decision.

Another change to the commercial landscape will come with new rules on roaming and network sharing, outlined last week by France’s telecoms regulator Arcep. The plans involve the termination of Free’s roaming deal with Orange, as well as the sharing of 4G infrastructure with Bouygues and SFR. Arcep says it will force Free and Orange to end their 3G mobile services agreement between the end of 2018 and the end of 2020, but allow Free to continue using 2G voice, SMS, and low speed services on Orange’s network. This announcement continues the controversy that has always dogged the Orange/Free arrangements, which the other MNOs have criticized for letting a disruptive rival into the market to undercut them, sparking a price war and a wave of job cuts.

Concerning the arrangement between SFR and Bouygues, which allows SFR customers to roam on Bouygues 4G network, Arcep said: “Because investments in 4G infrastructure are crucial to the market’s vitality, Arcep is calling for a specific end date for superfast (4G equivalent) roaming.” Those involved have until February 23 to respond.

“If this solution was justified to accompany the fourth mobile operator’s entry into the marketplace, it cannot be justified over the long term. The roadmap for terminating roaming agreements must now be defined, parallel to Free Mobile network roll-outs,” Arcep said in a statement. Sebastien Soriano, head of the regulator, has warned that reducing the number of operators in the market could be interpreted as ‘regression in relation to the introduction of competition.’

Orange may be looking for greater scale at home, but its sharper growth will come from emerging markets and it has announced three further acquisitions to strengthen its already extensive activities in French-speaking Africa and Middle East. Is targeting an increase in revenues from these regions of 20% between now and 2018.

Orange has purchased Bharti Airtel’s subsidiaries in Burkina Faso and Sierra Leone for a sum estimated to be between $800m and $900m, as well as Cellcom in Liberia. The operator is set to gain 5.5m extra subscribers in Africa from these deals. It is one of the most active externally based operators in the continent, but has been rationalizing its presence around the Francophone north and west regions, while exiting some countries where it has limited market share, such as the eastern territories of Uganda and Kenya.

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