By Ruth Bender
BARCELONA--Talk of mergers among telecom firms in France has
been so intense that executives are openly joking about it.
"Hey so who is buying Bouygues Telecom: You or us?," Altice SA
Chief Executive Dexter Goei quipped to Iliad SA's Finance Chief
Thomas Reynaud during an industry conference here this week. "We
could get Orange on board too," Mr. Reynaud joked back as the two
shook hands.
All joking aside, the European telecoms industry, after a
blockbuster year of deal making, is anticipating more.
Recent comments from European political leaders have signaled a
potential softening in regulatory opposition to consolidation. New
European Commission President Jean-Claude Juncker and his Digital
Commissioner Günther Oettinger, have called for easing restrictions
on mergers to boost investment, especially in the face of global
competition.
"I have listened with a lot of interest to the latest positions,
which appear to be more open than before to consolidation," said
Stéphane Richard, chief executive of Orange SA.
For years, telecoms firms have pushed regulators to approve
merger plans as a means of saving money to finance network
upgrades. Operators want economies of scale to help boost profits,
while they face stalling revenue in markets that for the most part
are considered mature and which are consumed by price wars. They
say they need higher profits to finance investments in new
technology to cope with a surge in data traffic, from which they
hope to make more money in the future.
European operators' average revenue per user has dropped 5.9% a
year over the past four years, according to the GSMA, a body that
represents mobile operators world-wide. That is down to aggressive
competition on prices in many markets and strict regulation,
coupled with a morose economic climate.
"Europe needs to allow consolidation," said Charlie Bracken,
finance chief of cable company Liberty Global PLC, which has
snapped up cable assets in Europe in recent years and is now
focusing on deals that boost the content it can offer. "We need to
be allowed to make more money."
This year has already been one of the busiest for deal making in
the industry since 2000, according to Dealogic, with $114 billion
in transactions targeting European telecom companies. And there are
more potentially in the pipeline.
In Portugal, cable investor--and Altice founder-- Patrick Drahi
is battling a consortium of private-equity firms to buy the
country's former telecoms monopoly for around EUR7 billion ($8.78
billion), in a deal that would add mobile and fixed operations to
his cable assets. France's Orange meanwhile is in the process of
buying Spanish operator Jazztel for EUR3.4 billion, which would
double its share of the broadband market in Spain, where it already
has a strong mobile market share.
Options for future deals are numerous. Operators in France
continue to be adamant believers that a deal that will cut the
amount of mobile players to three from four will happen. Altice
would be interested in buying Bouygues Telecom once it has absorbed
Vivendi's SFR, said its chief executive, Mr. Goei.
Tough competition on mobile prices in Italy and Denmark will
also likely trigger a merger in those markets, while in the U.K.,
BT Group PLC's upcoming launch of mobile services could spark moves
among rivals to combine fixed with mobile, analysts and bankers
said.
Orange is interested in boosting its position in the fixed-line
market in Belgium, Romania and Slovakia, Mr. Richard said.
It is still too early to say how the European Union will ease
regulations of mergers more broadly. Lobby groups will also
continue to fight hard to keep prices low.
"It is crucial to make sure there are agitators in every
market," said Antoine Autier, in charge of telecoms at French
consumer group UFC Que Choisir.
Still, the bleak outlook is likely to maintain the pressure to
merge. Moody's Investors Service expects European operators'
revenue to decline between 0.5% and 2% over the next 12 to 18
months, with Orange, Telefonica SA and Telecom Italia SpA suffering
the most due to tough competition and weak growth.
"Things don't always play out perfectly," said Liberty's Mr.
Bracken. "Let's see."
Simon Zekaria in London contributed to this article.
Write to Ruth Bender at Ruth.Bender@wsj.com
Access Investor Kit for Telefonica SA
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=ES0178430E18
Access Investor Kit for Bouygues SA
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=FR0000120503
Access Investor Kit for Vivendi SA
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=FR0000127771
Access Investor Kit for Orange SA
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=FR0000133308
Access Investor Kit for Iliad SA
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=FR0004035913
Access Investor Kit for BT Group Plc
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=GB0030913577
Access Investor Kit for Telecom Italia SpA
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=IT0003497168
Access Investor Kit for BT Group Plc
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US05577E1010
Access Investor Kit for Iliad SA
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US45173Y1010
Access Investor Kit for Orange SA
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US6840601065
Access Investor Kit for Telecom Italia SpA
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US87927Y1029
Access Investor Kit for Telecom Italia SpA
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US87927Y2019
Access Investor Kit for Telefonica SA
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US8793822086
Access Investor Kit for Vivendi SA
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US92852T2015
Subscribe to WSJ: http://online.wsj.com?mod=djnwires