By Ruth Bender
PARIS--Potential consolidation in France's telecommunications
market gained momentum Thursday, with a senior government minister
calling for deals and some of the country's largest players saying
they are exploring them.
Orange, the former state monopoly, and Bouygues SA, the owner of
Bouygues Telecom, Thursday said they were examining possibilities
to tie-up with French rivals within hours of a renewed call from
French Economy Minister Arnaud Montebourg for the French mobile
market to return to three operators from four.
Orange and Bouygues--France's Nos. 1 and 3 mobile operators by
subscribers--have been in contact over a possible tie-up but
discussions are at a very preliminary stage, people familiar with
the matter said.
At the same time, low-cost operator Iliad SA could acquire
infrastructure from Bouygues Telecom as part of a deal between
Orange and Bouygues, another person familiar with the matter
said.
France's largest telecom operators have been lobbying for years
to be able to consolidate. Their aim is to move the mobile market
back to three players, following Iliad's arrival in 2012, which
sparked a price war and led to layoffs. Now French phone companies
are looking for the way back to growth at home.
"Orange believes that a consolidation of the French mobile
market would be positive in the long term both for investments and
consumers," the company said in a statement Thursday. Bouygues, for
its part, is evaluating possible telecom alliances or tie-ups with
other local players, Bouygues Chief Financial Officer Philippe
Marien said in a conference call presenting first-quarter results
earlier Thursday.
French daily newspaper Les Echos earlier reported Thursday that
Bouygues and Orange were studying a possible tie-up that would give
Orange control of Bouygues's telecom unit, partially paying the
conglomerate in shares of Orange.
Efforts by Orange and Bouygues to find a joint solution come
amid an increasing push for consolidation from France's Mr.
Montebourg. The firebrand minister earlier this week said the
government wants consolidation in the sector, inviting Martin
Bouygues, chairman and CEO of Bouygues, to consider looking at ways
to merge with a rival. In a speech Thursday, Mr. Montebourg
reiterated that the French market needs to move back to three
operators.
The government, which still holds a 27% stake in Orange, has
been informed about the preliminary discussions between Orange and
Bouygues, one of the people familiar with the matter said. A
spokeswoman for Mr. Montebourg declined to comment.
Earlier this year, Bouygues tried to buy France's second-largest
mobile firm, SFR, which would have kicked off that hoped-for
consolidation. But after an intense bidding battle with rival
Patrick Drahi, a Franco-Israeli businessman who owns French cable
group Numericable Group SA, SFR parent Vivendi SA decided to go for
Mr. Drahi's bid. That left the mobile market at four.
The decision left Bouygues Telecom in a bind. The smallest of
the incumbents, it suffered more than rivals in the price war. Many
analysts have said the most probable solution now appears to be for
Bouygues to sell its telecom business to Iliad. But Bouygues
repeatedly said that it believes Bouygues Telecom can continue on
its own.
Any deal that reduces the number of operators could face a
difficult competition review, analysts say. That logic is what
could drive a deal for Iliad to buy infrastructure from Bouygues
Telecom as part a tie-up between Orange and Bouygues.
"We believe that this deal would be extremely challenging to
sell to antitrust authorities unless Orange sells a significant
portion of Bouygues's assets," Frederic Boulan, an analyst with
Nomura, wrote in a note Thursday evening.
Iliad and Bouygues negotiated a similar side deal during the SFR
bidding war that would have allowed Iliad to buy much of Bouygues
Telecom's antennas and a large swath of radio frequencies had
Bouygues won the fight for SFR.
Orange said in its statement that it would "pay particularly
close attention to value creation and legal risks in any eventual
deal."
An Iliad spokeswoman declined to comment.
Géraldine Amiel contributed to this article.
Write to Ruth Bender at Ruth.Bender@wsj.com
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