France's upstart mobile player Iliad is seeking talks with larger rivals Vivendi's SFR and Bouygues Telecom over joining the duo's network sharing plan, according to a letter published online by Les Echos newspaper.
The letter attributed to Iliad (Paris, France) Chief Executive Maxime Lombardini underscores how the planned network sharing between France's second- and third-largest operators, which aims to cut costs in response to Iliad's low-cost service, could reshape competition in Europe's fourth-biggest mobile market by clients.
Iliad, which is owned by billionaire Xavier Niel, is concerned that it will be left without a partner and in a weaker negotiating position with market leader Orange (Paris, France), if it is left out of a network sharing deal with SFR (Paris, France) and Bouygues (Paris, France), said a person familiar with the group's views.
In a bid to spark talks with SFR and Bouygues, who are still working on a final accord that is expected to be finalized early next year, Iliad wrote to them and sent copies to France's telecoms and competition regulators.
"We understand that the ... sharing accord being negotiated between SFR and Bouygues will cover a very large part of the country and more than half the population," Lombardini wrote, according to Les Echos.
Iliad is not in principle opposed to network sharing, he added, but a deal that did not allow for its inclusion "seems to us a factor that will destabilize competition and could be legally challenged."
Iliad is required to cover 75 percent of the population with its 3G mobile network as a condition of the license it obtained in 2011. Any network sharing would complement that coverage and help Iliad keep investment costs down.
SFR and Bouygues declined to comment.
Iliad also declined comment.
Iliad has said it will spend 1 billion euros ($1.4 billion)on building its network. It must also pay between 500 and 700 million euros a year at least until 2016 to Orange under a roaming contract to carry mobile traffic while the network is constructed.
Since launching its mobile service in January 2012, Iliad has taken a 10 percent market share and forced rivals to cut prices. French mobile prices have come down roughly 15 percent and further declines are on the cards, spurring Orange, SFR and Bouygues to embark on cost-cutting programs to restore profitability.
Iliad's letter to Bouygues and SFR was also aimed at showing Orange that Iliad could turn to others for its roaming and network sharing needs, the person familiar with the situation said.
Orange boss Stephane Richard has to date shown little interest in network sharing with Iliad, which has the smallest network in the country while Orange's is the largest.
"The imbalance between the networks of Orange and Iliad is too big to make network sharing interesting for us," said Richard at a Morgan Stanley investment contract last Friday. "The only topic up for discussion is the future of the roaming relationship."
In any case, France's competition regulator is likely to review the network sharing accord once it is finalized by SFR and Bouygues, to determine if it complies with antitrust laws.
In March the competition regulator laid out the criteria it would use to evaluate network sharing deals, including whether they apply to cities or rural areas and the type of equipment involved.
The combined market power of the companies proposing to share equipment will also be considered, it said at the time.
Bouygues and Vivendi shares were up 0.2 percent at 1153 GMT, while Iliad's rose 0.6 percent. France's blue-chip index was up 0.3 percent. ($1 = 0.7367 euros)
(Additional reporting by Kate Holton; Editing by David Holmes)