Out-Law News | 29 Oct 2014 | 10:30 am | 3 min. read
Reuters reported that France's competition authority said Numericable would have to divest certain assets and temporarily make its cable network available to competitors “to give them time to develop their own high-speed broadband networks”.
Among the assets it must sell are mobile activities in the French overseas territories of La Reunion and Mayotte. The company must also refrain from sharing with Vivendi any crucial market information where the two are competitors.
Numericable's purchase of SFR would create the second-biggest telecoms company in France behind Orange and ahead of Bouygues in what would be a reshaped French telecoms market. Vivendi selected Numericable as the buyer for SFR last April. The winning bid comprised €13.5 billion in cash, a 20% stake in the combined entity for Vivendi and a potential milestone payment. The other leading bidder was Bouygues.
Numericable said it expects to take at least one month to close the deal after securing regulatory approval.
Paris-based corporate law expert Frédéric Ichay of Pinsent Masons, the law firm behind Out-Law.com, said the move was the latest in a series of developments that are changing the face of the telecoms market in France. Ichay said the “continuing decreasing margin of the average revenue per user (ARPU), combined with rising investment demands, is placing the wider European telecoms market on an increasingly unsustainable trajectory”.
Ichay said: “While many of the larger European operators are dealing with the reduction in cash flow that this provokes, for example by selling non-strategic assets and reducing dividend payments to shareholders, in the longer term such trends will inevitably fuel more market consolidation.”
“French telecoms policy has historically focused on infrastructure competition followed by price,” Ichay said. “The appearance in January 2012 of Free Mobile as a fourth telecoms operator has led to a violent price war in the French market, which has forced operators to decrease plans to the public while cutting operating expenses. Vivendi accepted Numericable's bid for SFR following intense competition between the cable operator and Bouygues Telecom. However, the consolidation activity is clearly not over, as all mobile operators as well as the French economy minister have expressed their support for a three-player mobile market.”
According to Ichay, over the four years up to the end of 2013, European mobile revenue fell by an average of 2.1% each year. Meanwhile, shares have also been on the slide.
Ichay said: “Across Europe, phone and cable carriers are pursuing a flurry of mergers and acquisitions to stop a decline in landline and wireless service revenue. Such financial pressures and difficult market conditions since the crisis have been hindering the ability of operators to monetise data and to extend the reach of mobile into new services and related industries. To compound matters further, regardless of rising network investment all operators are choosing, for example, not to charge a premium for 4G services, thereby placing downward pressure on 4G ARPU in the market.”
“For example Bouygues Telecom, which was particularly hit by the ferocious price war initiated by Free, said in May that it would cut 1,516 jobs as part of plans to achieve annual cost savings of €300 million by 2016 and to survive in a four-player French market,” Ichay said. “The benefits of consolidation appear in general to be recognised by French and European regulators and even regulators in the US, who allowed the merger between US operators T-Mobile and MetroPCS.”
Ichay said that while the market is looking for consolidation, “there are still problems with the prices being demanded as well as obvious competition issues that are often raised”. “The need to introduce new mobile services such as superfast 4G internet surfing has boosted arguments for consolidation, as there is a finite amount of expensive spectrum offered to operators to meet higher demands for bandwidth-heavy data such as video,” he said. “Previously, discount companies were able to take part of this business away from larger premium operators, but the move to a data-intensive world has destabilised this model.
According to Ichay, “telecoms operators are being pushed to consolidate in order to survive”. “A merger of Bouygues Telecom and Iliad is the most pragmatic scenario of consolidation in the French market because of fewer regulatory obstacles and likely synergies so far.”