The reduction to three quad play players in France, from the current four, was always going to be a tough merger to make happen and Orange and Bouygues have extended their talks, in order to reach agreement with all parties. Even so such talks may not make the deal happen.
It is a very French thing to involve everyone. The US way of doing such a deal is to agree between the two boards in private and then try to bully the regulators into agreeing, and then issue public statements saying how great this deal will be and resort to legalities if things don’t go in favor of a merger. The French way is to invite all the major constituents, like the French government, rivals and regulators to the talks, and make sure all of their concerns are dealt with in the basic structure of the deal.
So it doesn’t surprise us to hear that the talks, which have lasted since January, are continuing and could not reach a conclusion this week, or that one or two French publications say they have narrowed the deal down to price, the amount of control the French government continues to have in Orange, how to create a deal where those balances cannot be changed, and which assets the merged business will have to give up in order for the result not to be anti-competitive.
We think that all of these things might be resolved, in this peculiarly French way, and yet still a deal might not get done. The European Commission has to approve this deal and sits above the French Regulator, and will want to impose net neutrality and content purchasing conditions on the deal too, if the French regulator sees fit to ignore them. Also if assets have to be sold, who they need to be sold to in order to retain the competitive tension in the market, might mean that rivals too have to be involved in the talks. Sometimes French agencies just walk away from such deals because of the complexities, and perhaps the US way of doing things is better because it is simpler.
Another factor being voiced is the idea of what happens to the staffing levels and who pays for the layoffs, something the French government will be keen to have a hand in, given that there is an election again in precisely one year. A government that agrees a major merger that pushes up mobile pricing and loses jobs, might lose such an election. It is easier to do nothing.
What should have happened is that Free and Numericable-SFR should have acquired Bouygues’ networking arm between them, sharing out the assets, but throughout the past few years no-one could agree on the value of the companies and it is true that to a disruptor like Free, it is cheaper to disrupt the market than to pay full price for an existing network, especially when that network is losing money and customers. So that put the ball in Orange’s court.
But Orange is too big within France and too dominant, and getting this deal acceptable to all parties will test everyone’s patience, because France will have to live with it afterwards.