Bouygues Intensifies Phone Price War Amid Industry Merger Talks

Bouygues SA (EN), the French building and telecommunications company, introduced a discount package for Internet, fixed phone and television services, intensifying a price war that’s prodding rivals to consider mergers.

Bouygues’s offer at 19.99 euros ($27.46) per month for the so-called triple play will allow clients to save more than 150 euros annually compared to rival services, Chief Executive Officer Martin Bouygues said at a press conference in Paris today after the company reported operating profit that exceeded analysts’ estimates.

“We want to give purchasing power back to consumers in these difficult times,” Chief Executive Officer Martin Bouygues said at a press conference in Paris today. He said margins of some rivals are similar to those of luxury-goods makers.

The French telecom market needs to consolidate because of its “disastrous” shape, the Bouygues CEO said today, while declining to say whether he wants to participate in alliances. Earnings at Bouygues Telecom, Orange SA (ORA) and Vivendi SA (VIV)’s SFR have dwindled since Iliad SA (ILD) started a discount wireless service in January 2012.

As a result, Bouygues and SFR have cut jobs and agreed to share part of their networks to slash costs, and Vivendi said Feb. 24 it’s been approached about a potential alliance between SFR and cable provider Numericable Group SA.

‘Aggressive Move’

Bouygues shares traded 0.3 percent higher at 30.34 euros at 2:07 p.m. in Paris after rising as much as 5.6 percent. Iliad shares traded 7.1 percent lower, while Vivendi dropped 1.8 percent. Orange declined 3.7 percent.

“Bouygues’s aggressive move today and equally aggressive posture on further price cuts could be part of an effort to increase its strategic value as a number of M&A transactions are currently being studied,” Frederic Boulan, a London-based analyst at Nomura, said in a research note today.

Bouygues, which had 11 million mobile-phone clients and 2 million fixed broadband subscribers at the end of 2013, aims to gain 5 million triple-play customers as soon as possible, the CEO said.

The Paris-based company today reported a net loss of 757 million euros in 2013 because of 1.4 billion-euro writedown on its 29 percent stake in Alstom SA, reflecting weaker sales prospects for power plants and equipment. It had a net income of 633 million euros in 2012.

Alstom Comfort

The CEO said he’s “comfortable in Alstom,” which is “remarkably managed” and will benefit from rebounding turbine sales as global economic growth picks up.

Bouygues predicts sales in 2014 to be “close to the 2013 level,” with financial results of the construction businesses remaining “robust” thanks to its backlog.

Bouygues Telecom, France’s third-largest mobile-phone company, “is initially calling for slightly positive cash flow generation in 2014 and is stepping up its transformation plan, which should improve short- and medium-term visibility from the second quarter of 2014,” the company said.

Bouygues’s operating profit before one-time items and restructuring costs rose 5 percent to 1.34 billion euros in 2013, the company said today. Analysts had estimated profit of 1.3 billion euros, according to the average of seven estimates compiled by Bloomberg. Revenue fell 1 percent to 33.3 billion euros.

Bouygues proposed a dividend of 1.60 euros a share, unchanged from last year.

To contact the reporter on this story: Francois de Beaupuy in Paris at fdebeaupuy@bloomberg.net

To contact the editor responsible for this story: Simon Thiel at sthiel1@bloomberg.net

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