Talk of consolidation in the French telecoms landscape

In what could bode well for the players within the landscape, there’s talk of further consolidation within the telecoms sector in France.

Reports suggest that Orange held informal talks with Bouygues, regarding a potential acquisition of Bouygues’ telecoms business (Bouygues Telecom).

Bouygues’s shares are up (4% at time of writing), making it the best performer on the CAC 40, partly on the back of this latest news flow.

Shares of Orange (previously known as France Telecom) also inched up today – up around 1%.

As a reminder: French cable operator, Numericable, emerged as winner in April, following months of battle with Bouygues over the acquisition of Vivendi’s telecoms business (called SFR).

By the way, Numericable announced today (16^th May) that it has entered exclusive negotiations to acquire Virgin Mobile France in a deal worth €325m.

Does ditching Bouygues Telecom make sense for Bouygues?

Well, losing its bid for SFR was something of a blow to Bouygues.

Bouygues Telecom has been under pressure over recent years, and that pressure was made further apparent yesterday, when Bouygues released its first-quarter results.

Revenue at its telecoms business declined 5% to around €1bn in the first quarter; EBITDA came in at €163m, down from last year’s €212m; and it made an operating loss (excluding exceptional items) of €19m in the period.

Further cost cutting at Bouygues Telecom is on the cards, with Bouygues aiming for an annual saving of €300m on total costs by 2016 in that business.

With all that in mind, it stands to reason that for Bouygues, offloading Bouygues Telecom (and saving on additional investments relating to it) for a decent price tag would seem an attractive proposition. Reports suggest the business could fetch at least €6bn.

Of course, the heat hasn’t been on Bouygues Telecom alone…

The competitive pressure faced by telecoms operators in France is well known, and they’ve all been feeling the heat.

Talk regarding network sharing arrangements among some of the players as a chance to reduce costs makes the rounds every so often – Bouygues Telecom and SFR agreed such a deal earlier this year – and more such deals would bode well for all.

And so would any move to reduce competition – as would indeed be the case with a potential Orange/Bouygues Telecom deal.

That said, scepticism abound regarding a successful outcome. For starters, potential regulatory hurdles certainly can’t be ruled out.

Meanwhile, there’s also been chatter regarding a potential purchase of Bouygues Telecom by operator of the free brand, Iliad (shares currently up 5.5%).

Regardless, there’s reason for optimism with all of this talk of consolidation.