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The Yellow Vests Have French Telecoms Over a Barrel

Alex Webb
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The Yellow Vests Have French Telecoms Over a Barrel

(Bloomberg Opinion) -- The yellow vests are inflicting particular pain on Xavier Niel, the billionaire founder of mobile carrier Iliad SA.

A Tuesday earnings report showed Niel’s firm is bleeding subscribers. Those at Bouygues SA, Orange SA and Altice Europe NV have meanwhile soared. 

When Iliad entered the French market with its low-cost offering, it prompted the crippling price wars which are now weighing on all those firms’ profits. A reversal of that trend could help offset the pain of lost customers.

Industry consolidation would reduce the number of carriers from four to three, paving the way for higher tariffs. Regulator Arcep had made it clear that it would be willing to consider this once the renewal of mobile spectrum deals was completed in October.

But in mid-November, the anti-capitalist yellow vest movement started a wave of protests against French President Emmanuel Macron. These activities abated around the start of 2019, only to return in recent days.

That has delayed any likelihood of dealmaking in the nation’s telecommunications industry. Given that the spark for the protests was an increase in fuel prices, and any merger would certainly result in higher costs for customers and raise the prospect of job losses, consolidation has become politically unfeasible.

The most probable outcome of a wave of merger activity would be some sort of tie-up between Altice, with its SFR unit, and Bouygues’ telecoms unit. Iliad and Orange could swallow divestments made as part of the remedies, potentially increasing their footprint.

Though Niel’s company is hemorrhaging customers in France, all is not lost. Selling a stake in its mobile towers business could give it the funds it needs to expand, without cutting the dividend. 

Niel is considering an investment from infrastructure funds in the arm, which has about 5,700 towers. Based on the average 353,010 euros ($400,666) enterprise value per tower that Altice received when selling a slice of its business to funds last year, Iliad might expect the division to secure an EV of some 2 billion euros. 

It seems likely that those funds will be used to boost the company’s presence in Italy, where growth is faster than in France. Iliad has pledged 1.2 billion euros for mobile spectrum there, and aims to equip 3,500 towers by the end of the year.

This wouldn’t solve the company’s profitability problem. A reduction in the number of French operators would.

After a torrid 12 months, Iliad desperately needs an end to the yellow vest protests.

To contact the author of this story: Alex Webb at awebb25@bloomberg.net

To contact the editor responsible for this story: Jennifer Ryan at jryan13@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Alex Webb is a Bloomberg Opinion columnist covering Europe's technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.

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