French Watchdog Opposes Iliad, Orange Extending Roaming Deal

Iliad SA, the French low-cost mobile carrier renting network capacity from France Telecom SA, shouldn’t be allowed to extend a roaming agreement, the country’s competition authority said.

France Telecom, which operates under the Orange brand, should consider ending the contract before it runs out in 2018, the authority’s president, Bruno Lasserre, said today in a press conference in Paris. Under the agreement, France Telecom can end the deal in 2016. Iliad or France Telecom haven’t said whether they’ll seek an extension or early termination.

The pact has allowed Paris-based Iliad’s Free Mobile to sell cheap phone packages before building its own infrastructure in full, prompting competitors to slash prices, reduce spending and plan job cuts. The accord has helped France Telecom to offset falling revenue in its home market.

“The roaming contract with Orange has given Free a considerable advantage,” Lasserre said. “Roaming can give some players the ability to give the market a new direction. It needs to be regulated and it needs to have a time limit.”

Iliad has been renting capacity from France Telecom since they signed a six-year roaming contract two years ago, paying the former phone monopoly 500 million ($650 million) to 700 million euros a year, according to Lasserre. France Telecom said last year the roaming contract will generate revenue of more than 1 billion euros over three years.

The contract allowed Iliad, an Internet-service provider, to start selling mobile packages in France in January 2012. Iliad has since added 5.2 million mobile subscribers.

France Telecom is satisfied with the report, which held “no surprises” with regard to the company’s roaming deal with Iliad and paves the way for potential negotiations with rivals in the coming weeks about mutualization, Secretary General Pierre Louette said in an interview. SFR also said in a release that it is satisfied with the report.

Isabelle Audap, a Paris-based spokeswoman for Iliad, declined to comment on the competition authority’s comments.

Iliad was little changed at 151.90 euros at the close of trading in Paris. The stock has advanced 54 percent in the past year. France Telecom rose 1 percent to 7.98 euros.

‘Collusion Risks’

Iliad is required by law to cover 75 percent of the French population with its own mobile network by 2015, and 90 percent of it by 2018. It said in January the coverage was 50 percent.

The carrier’s entry into the mobile market, at discounted prices as low as 2 euros per month, prompted competitors to also cut rates. France Telecom, Vivendi SA’s SFR and Bouygues SA have since sought to reduce spending to adapt. SFR and Bouygues Telecom unveiled plans to cut jobs.

The backlash prompted French ministers to ask the local watchdog last year for an opinion on Iliad’s roaming contract. They also asked the authority to set some standards for future network sharing or any form of consolidation in the industry.

“The French telecoms market still shows some signs of collusion risks,” the authority said in a press release. While sharing networks in the least-populated areas of the country will be encouraged, deals in dense cities will be studied cautiously, Lasserre said.

Straight mergers between France’s carriers are not “possible nor desirable,” he said.

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