Orange Says Wireless Rivals May Lose Patience in French M&A

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Three out of France’s four biggest phone companies have a compelling reason to consolidate, and it’s just a matter of time before one decides to make the first move, said Gervais Pellissier, Orange SA’s head of Europe.

Iliad SA lacks spectrum, Numericable-SFR SAS needs a better network and Bouygues SA doesn’t have enough cash, Pellissier said at a meeting with reporters in Paris on Tuesday. Orange won’t take part in the consolidation, though it may get involved as a partner or pick up assets, such as frequency, that are discarded as part of the mergers, he said.

“It is difficult to know between Mr. Drahi, Mr. Bouygues or Mr. Niel who will lose his nerve first and decide to sell,” Pellissier said, referring to the owners of Orange’s rivals: billionaires Patrick Drahi, Martin Bouygues and Xavier Niel. “Who is the one who will consider he has to move now rather than wait?”

A Bouygues spokesman declined to comment as did representatives for Numericable’s owner Altice SA and Iliad.

Orange shares rose 0.1 percent to 14.65 euros at 10:25 a.m. in Paris, giving the company a market value of 38.8 billion euros ($43.3 billion).

France’s carriers are weighing how to turn their attention from cost-cutting to growing their business now that the country is beginning to emerge from years of price wars that saw some mobile-phone plans dip to 2 euros a month.

Pan-European Consolidation

Ultimately, the biggest European carriers will be able to consolidate across borders, targeting companies like Telecom Italia SpA and Belgacom SA, which operate primarily in a single market, Pellissier said.

“In the next five years, a few global groups will emerge in Europe,” he said. “Players in a single market might be purchased by those that are bigger;” a group of buyers that may include Orange as well as other big companies like Deutsche Telekom AG, he said.

Consolidation generally is being driven by freely available financing as investors reward companies with riskier strategies, Pellissier said. Drahi’s Altice is an example of that, he said.

Still, to create a true single, European market for phone carriers, the European Union will have to make it easier to construct unified networks. Policies that would let carriers buy rights to airwaves for all of the region rather than on a country-by-country basis would be one of the necessary steps, he said.

July Auction

While Altice is on the hunt for acquisitions from Paris to the U.S., Bouygues has said it isn’t a seller and that it expects its phone business to return to positive free cash flow next year as it cuts costs. Meanwhile, France’s carriers have their eyes set on the country’s July auction for licenses in the 700 megahertz band, additional frequency that will let operators improve their networks. Drahi last month said SFR is investing to improve its network.