Orange Fails to Reach Deal on French Wireless Consolidation

Orange SA said it failed to agree on a deal to help the French telecommunications market consolidate, leaving few options as a price war spreads from wireless to landline subscriptions. French phone stocks declined.

Orange “believes that it cannot pursue this avenue at the present time” as conditions weren’t met, the Paris-based carrier said today, without elaborating. Bouygues SA, the owner of Bouygues Telecom, is preparing for a future with four carriers in France as “now nothing is happening in this area,” Chief Executive Officer Martin Bouygues told a committee of the French National Assembly yesterday.

Bouygues Telecom, France’s third-largest mobile operator, was looking for a buyer as profitability and cash generation declined. The company last month unveiled plans to eliminate 17 percent of its workforce after merger talks with Orange and separately with Iliad SA failed. French Economy Minister Arnaud Montebourg has since called on the carriers to return to negotiations to take the country’s number of carriers from four to three in a bid to alleviate a three-year price war.

A merger of Bouygues Telecom and Iliad is the most realistic scenario of consolidation because of fewer regulatory hurdles and potential synergies, according to Societe Generale analysts. Iliad has been eyeing Bouygues’s network as it has yet to build its own in full since entering the mobile market in 2012.

Shares Slide

Orange fell 2.9 percent to 11.46 euros at 10:59 a.m. in Paris. Bouygues slid 2.9 percent to 29.47 euros and Iliad lost 4 percent to 215.35 euros. SFR is France’s second-largest wireless carrier, and its owner Vivendi SA agreed in April to sell it to cable investor Altice SA.

Across Europe, phone and cable carriers are pursuing a flurry of mergers and acquisitions to stem a decline in landline and wireless service revenue. Competition Commissioner Joaquin Almunia is scheduled to announce a merger decision at midday today in Brussels. He has until July 10 to decide on the $12 billion takeover of Royal KPN NV’s E-Plus unit in Germany by Telefonica SA, and an approval is widely expected.

The French government owns 27 percent of Orange, the country’s biggest phone company. Pierre Louette, Orange’s secretary general, said last month that the carrier couldn’t agree with Bouygues on a deal that could “repair” the French telecommunications market.

Alstom Stake

Phone bills in France have dropped, especially for mobile services, since Iliad’s Free brand started selling discounted packages about 30 months ago, gaining 8.6 million mobile subscribers as of the end of March. France had about 70 million wireless customers, of which more than 53 million were monthly subscribers, according to regulator Arcep.

Iliad and Bouygues failed to reach an agreement because of a 3 billion-euro ($4.1 billion) price gap, people familiar with the talks said last month. Orange could have facilitated such a deal by buying 1,800 megahertz spectrum from an enlarged entity, said Virginie Deterck, an analyst at Paris-based Amundi Asset Management. An Orange spokesman declined to comment beyond the company’s statement today.

Bouygues agreed last month to sell part of its stake in Alstom SA to the French government as part of General Electric Co.’s $17 billion takeover of Alstom’s energy assets.

Bouygues Telecom has since intensified landline competition, cutting prices for last month for ultra-high-speed broadband connections as some rivals are trying to charge a premium to restore profit margins.

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