Iliad’s Niel Said Angling to Expand Further Once Italy’s Secured

  • French carrier reaches deal for Wind-3 Italia towers, airwaves
  • Operator of low-cost Free wireless said looking for more deals

Iliad SA’s Xavier Niel, closing in on a long-sought expansion into Italy, is searching for more opportunities to grow with Iliad’s low-budget wireless service Free, people familiar with the matter say.

The French carrier agreed to buy assets from CK Hutchison Holdings Ltd. and VimpelCom Ltd. to create a fourth mobile-phone network in Italy, according to a statement Tuesday. The transaction is contingent on those two companies winning EU approval to combine their Italian units in 21.8 billion-euro ($24.3 billion) deal. The Hutchison-Vimpelcom transaction is likely to gain approval with conditions, by a Sept. 8 deadline, according to one person involved in the process who asked not to be named discussing private information.

Iliad’s entry into Italy, now tantalizingly close, could be just a start for Niel after failed attempts to expand into the U.S. and the U.K. Free’s low-cost offering puts it in sync with regulators’ priorities -- deals that don’t raise prices or undermine consumer choice. While the U.S. and U.K. aren’t currently in play, Iliad is looking for opportunities there and elsewhere, and is confident it can raise debt to fund more acquisitions, the people said. That could spell trouble for competitors.

“One should not underestimate Iliad’s pricing creativity, innovation capacity, and know-how in terms of direct distribution and viral marketing," Thomas Coudry, an analyst with Bryan Garnier & Co. in Paris, said in a research note earlier Tuesday.

Iliad is paying $450 million for wireless frequencies, and acquiring several thousand transmission sites, according to the statement. It also secured a roaming agreement for five years with the merged company. Altogether, Iliad will invest about 1 billion euros for the extra towers, frequencies and roll-out, which it will fund with existing resources, said the people, who asked not to be named discussing private information.

“The remedy package would enable the Iliad Group to offer competitive mobile services and to become a fourth mobile network operator with nationwide coverage,” Iliad said in the statement.

Niel, who founded Paris-based Iliad and is its biggest shareholder, declined to comment.

An expansion in Italy would mark a significant development for Iliad, known for wireless packages starting at 2 euros a month. The company shook up the competitive landscape in France when Free started mobile service four years ago, sparking price wars that turned the market into one of Europe’s toughest to make a profit in. The collapse of merger talks between Orange SA and Bouygues Telecom three months ago has left Free locked in a discount battle with Bouygues and other rivals.

Iliad has shown interest in the U.K.’s O2, and sought to acquire T-Mobile USA Inc. in 2014, without success. Entrepreneur Niel also acquired options equivalent to a stake of about 10 percent in Telecom Italia SpA through his personal investment company. That non-voting investment has a current value of less than 25 million euros and will be sold in coming weeks, Iliad said.

Prospects for approval of the merger of Hutchison’s Tre Italia with VimpelCom’s Wind Telecomunicazioni Spa have improved each day this week that EU competition regulators haven’t issued a so-called statement of objections.

Still, Iliad’s entry into Italy isn’t yet assured. The acting head of the U.K.’s competition authority, Andrea Coscelli, said Tuesday that his agency may seek to weigh in on any proposals addressing the EU’s competition concerns.

Should it succeed, Iliad is also likely to reach terms for access to fixed lines of Telecom Italia and Enel SpA, according to Coudry. That would allow Free to offer bundles with wireless, fixed phone service and Internet access, while also delivering mobile service at broadband speeds required for watching video.

Iliad would start from scratch in Italy, with no existing customers, and a limited room for prices to fall in mobile, according to Coudry.

Italy is an attractive market for Iliad, while its entrance would be negative for wireless competitors Vodafone Group Plc and Telecom Italia, according to Daniel Morris, an analyst with Barclays. About 80 percent of customers there rely on prepaid service, he said.

“This is a key segment that Iliad has targeted in France, shifting pre-pay and low-end post-pay customers onto 2 euros-per-month bundles, which then offers an opportunity to upsell” to higher-priced and larger-data plans, Morris said in a note.

Iliad declined 2.9 percent to 176.90 euros Tuesday in Paris, while VimpelCom advanced 5.4 percent to $4.02 in New York. CK Hutchinson fell 1.7 percent to HK$83 earlier in Hong Kong.

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