Drahi May Need to Leave Room for a Rival in Bouygues Deal Probe

Patrick Drahi
Billionaire Patrick Drahi. Photographer: Ivan Guilbert/Bloomberg

Billionaire Patrick Drahi’s Numericable-SFR may have to leave room for a new rival in order to obtain antitrust approval if it acquires Bouygues SA’s wireless carrier, regardless of which antitrust regulator gets to probe the proposed deal.

Faced with a tie-up that would reduce the number of network providers on the French market from four to three, competition regulators will want to extract concessions before of any clearance, according to lawyers and analysts.

“In all likelihood there will be a requirement to carve out capability and impose divestitures so that a sufficient competitive constraint will remain there,” said Tim Cowen, a lawyer at Preiskel & Co. LLP in London. That may mean ensuring spectrum is available for a new fourth player to emerge.

A possible combination of Numericable-SFR, the cable and mobile-phone unit of Drahi’s Altice SA holding company, and Bouygues would create a company with more than 30 million mobile subscribers and revenue of more than 15 billion euros ($16.8 billion) to challenge market leader Orange SA, according to data compiled by Bloomberg.

Bouygues called the offer unsolicited and said no negotiations with Drahi’s side are under way. Its board will meet Tuesday to evaluate the proposal. Economy Minister Emmanuel Macron said the timing “isn’t right” for further consolidation in the French phone market.

The deal is likely to be reviewed by France’s competition regulator rather than the European Commission because the two sides are concentrated on the French market, according to lawyers, regulatory officials and analysts. That’s even taking into account Altice’s purchase of PT Portugal, a unit of Brazilian telecommunications company Oi SA.

Portuguese Deal

“Even with Portugal Telecom now consolidated we expect Altice to generate around 80 percent of its EU sales in France and so expect a deal to be considered in the first instance by the French competition authorities,” Citigroup Inc. analysts wrote in a note on Monday.

It doesn’t make much difference whether the French regulator or the commission reviews the deal, Cowen said. “There seems to be a consensus emerging among competition authorities” in terms of analyzing such deals as the recent clearances of mergers in Germany and Ireland show.

The EU regulator has allowed deals that cut the number of operators from four to three provided carriers offer adequate commitments to ensure competition -- such as by paving the way for “virtual” operators that don’t own their own infrastructure.

Still, antitrust chief Margrethe Vestager has signaled a willingness to be tough on deals where she sees a threat to consumers. That includes continuing plans by TeliaSonera AB and Telenor ASA’s plan to merge their Danish mobile-phone operations. Vestager’s officials will raise concerns with the companies over that deal this week, Reuters reported Monday.

Four to Three

Without four players “there’s too great a risk of coordination” on prices, so what’s needed is the creation or strengthening of a fourth mobile network operator, said Cowen.

“One of the difficulties of creating one from scratch is that it takes quite a while for that competitive constraint to be effective,” he said. “There’s a lot of execution risk.”

The commission in Brussels declined to comment on the proposed deal, as did the French Competition Authority and Numericable-SFR.

Smaller rival Iliad SA, which is controlled by Xavier Niel, said it’s in exclusive talks with Numericable-SFR to acquire some assets.

The negotiations, over network infrastructure and wireless frequencies, are aimed at alleviating regulatory concerns, people familiar with the matter said Monday.

‘Maverick’

“We expect Iliad to be seen as the maverick and protection of its competitive capacity therefore being a priority for the regulators,” Citigroup wrote. “Hence the asset sale would be significant in terms of heading off some potential concerns.”

Competition officials may also analyze the impact on bundled offers of mobile and fixed connectivity, according to Luca Schiavoni, an analyst at Ovum in London.

“If regulators find that the merged entity can offer packages that its competitors cannot replicate, this could play into setting out remedies or deciding whether or not the deal should be approved,” he said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE