Bouygues to sell network to Iliad if SFR merger approved

French telecoms player Bouygues has agreed a €1.8 billion ($2.5 billion) sale of its mobile-phone network to rival Iliad on the condition that French competition authorities approve its €14.5 billion takeover of SFR, the country’s second-biggest mobile operator.

Announced at the weekend, the deal would see Bouygues (Paris, France) transfer ownership of its mobile network and a batch of frequencies to Iliad (Paris, France), which currently rents capacity on the network of Orange (Paris, France) to provide mobile-phone services under the Free brand.

The move is overtly aimed at persuading French competition authorities to back a merger between Bouygues and SFR (Paris, France) that would reduce the number of operators from four to three and probably result in a lessening of the price-based competition that has wreaked havoc in the market since Iliad’s entry in early 2012.

Bouygues, however, faces competition over SFR from European cable group Altice (Paris, France), whose own merger plans would preserve a four-player market.

According to the UK’s Financial Times newspaper, French industry minister Arnaud Montebourg has spoken out in preference for the Bouygues deal, indicating that “destructive competition” will continue to harm the industry in a four-player market.

Nevertheless, a tie-up between Bouygues and SFR would put two operators in control of about 90% of the market, in terms of customer numbers, with the result that France goes from being one of Europe’s most competitive mobile markets to one of its least.

Following a merger with SFR, Bouygues would serve 32 million customers, ahead of Orange with 27 million and Iliad with just 7 million.

Iliad appears keen on the deal because it currently spends about €700 million a year to use the facilities of Orange and wants to reduce its dependence on the former state-owned monopoly.

Bouygues has been attempting to placate authorities by insisting there will be no redundancies as a result of its SFR takeover, and that a merger will spur investment in the rollout of high-speed networks.

According to the Financial Times, representatives of Altice have said its plans would offer SFR owner Vivendi a much faster exit from the mobile operator.

The process of securing regulatory approval for an SFR acquisition could take up to nine months for Bouygues, and Vivendi is eager to dispense with various telecoms assets and focus resources on its core media interests.

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