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 If Vivendi picks Bouygues' bid for SFR over a rival offer — and if
regulators approve the merger — then Bouygues will sell 15,000
mobile antennas and some of its mobile spectrum to Iliad for up to
1.8 billion euros ($2.50 billion), according to statements from both
companies on Sunday.
France's telecom landscape is on the verge of a major reshuffle
after Iliad's entry to the mobile arena in 2012 sparked a fierce
price war. Iliad's Free Mobile service grabbed nearly 10 percent
market share and forced its larger rivals Orange <ORAN.PA>, SFR, and
Bouygues to slash costs to cope.
The fallout convinced Vivendi to exit telecoms after seeing core
operating profit at SFR, the country's second-biggest operator,
halve from 2011 levels to 1.07 billion euro last year.
It had been planning to spin off SFR this summer, but is now
weighing two competing bids from Bouygues and local cable operator
Numericable <NUME.PA>. Bouygues has offered Vivendi 10.5 billion
euros in cash and a 46 percent stake in new the company, while
Numericable offered 11 billion euros and a 32 percent stake in the
new company.
Combining Bouygues, the third-biggest telecom group in France, with
SFR would give the new carrier 42.8 percent market share, more than
current leader Orange. Competition lawyers have said the Bouygues-SFR
tie-up would attract tough regulatory scrutiny because of the risk
the new company would be too dominant, leading to higher consumer
prices.
Numericable faces fewer competition issues because it is not a major
player in mobile, although there would be some issues on media and
content rights.
Bouygues knew that the main weakness of its bid versus that of
Numericable's that it has a greater risk of being blocked over
competition concerns, according to a person familiar with their
thinking. The deal with Iliad is meant as a pre-emptive strike to
get Vivendi's board to pick its bid, the person said.
"This agreement allows us to present to the (French) antitrust
authorities a merger proposal that ensures strong competition on the
French mobile market," Bouygues Chief Executive Martin Bouygues
said.
In an interview with French newspaper Le Parisien, French Industry
Minister Arnaud Montebourg said the government's view was that the
"destructive" telecoms price war would end if France's four mobile
operators went down to three, implying Bouygues' bid was potentially
preferable to Numericable's.
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"(The government's) red line is clear: no layoffs plan, no voluntary
departure plan and no job cuts," Montebourg was quoted as saying.
"Competition by destruction will end if we go back to three
operators while keeping prices low. It will not end if Numericable
wins SFR."
Iliad has been building its own mobile network for the past three
years and has put up 3,000 antennas to cover a portion of the
country. While it builds, Iliad has been paying Orange roughly
500-600 million euros a year to carry its mobile traffic and permit
it to operate.
The agreement with Bouygues would give Iliad a fully functioning
network sometime in 2015 and save it money by allowing it to end the
contract with Orange in 2016, according to the paper.
Thomas Reynaud, Iliad's chief financial officer, said the group
would finance the purchase of the towers and spectrum from its cash
reserves and existing lines of credit, and that no capital increase
would be needed.
Iliad's strategy of being the low-cost operator that disrupts the
market will not change "one iota", he said.
"The deal gives us all the resources we need to continue our strong
commercial performance and our development," he added.
A Vivendi spokesman said on Sunday that the group's board would
continue to study the possible scenarios for SFR and had no
preference at this time. A small committee of board members met on
Saturday to review the bids, and a full board meeting is planned for
late this week, sources earlier said. <ID:L6N0M50FG>
A spokesman for Numericable declined to comment.
($1 = 0.7214 euros)
(Reporting by Leila Abboud and Gwenaelle
Barzic; editing by Lionel Laurent)
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