Virgin at center of latest French mobile shake-up May 06 2014

SFR or Bouygues Telecom may bid for controlling stake in large MVNO, as they arm themselves against Free

 By Caroline Gabriel

The merry-go-round of French mobile communications continues. No sooner had Virgin Mobile become the latest LTE provider in the country, adding to the threat of a 4G price war, than it was reportedly approached as an acquisition target by two larger rivals, SFR and Bouygues.

UK retailer Carphone Warehouse aims to sell its 46% stake in Virgin Mobile France as early as this summer, according to French newspaper Les Echos, and sources indicate its deadline for offers is May 15. The seller is likely to get a far higher price from a network owner - sources indicate a likely sum of €150m if the buyer is an MVNO twice that from an MNO.

Carphone Warehouse may be in luck - both SFR and Bouygues, the second and third French MNOs, are understood to be ready to make a bid, along with several virtual operators, including specialist business MVNO Coriolis and Credit-Mutuel-CIC. It is likely that Virgin Mobile France's management would also sell its stake of 8%, but the Virgin Group would keep its holding via an IPO. Lead MNO Orange, however, is said not to be interested because it considers Virgin's customers too subject to churn (it is the host of the MVNO network).

If either of the other cellcos succeeds, it would have improved ability to compete with Free Mobile, the fourth mobile operator, which has been highly disruptive since it launched cut-price 3G services, harnessing the residential base and Wi-Fi of its parent, Iliad, to offer competitive bundles and WiFi-first offers. Virgin would bring a user base of about 2m, concentrated on the prepaid end.

It also recently launched LTE services, which could push its customer profile upmarket, but could also signal a shift of the French price war to the 4G sector. Virgin aims to emulate Free's disruptiveness. It says it is offering the first no-contract LTE plan in France to come with a subsidized smartphone. Otherwise, its tariffs are comparable to those of the low cost brands of the three majors - SFR Red, Orange Sosh and Bouygues B&You - while not reaching as low as Free's LTE plan of €19.99 for 20Gbytes. Virgin gives 3Gbytes for that price, or 5Gbytes for €24.99, including an extra 1Gbyte for roaming in Europe. The MVNO has about 2m customers.

Free has already sparked a price war and squeezed the profits of the established three cellcos, leading to consolidation in the market. Bouygues recently tried to acquire SFR from parent Vivendi, but lost out to cable group Numericable, an outcome which, once the deal is approved, will shake up French mobile communications yet again. Numericable is following a common pattern among European broadband providers, of adding mobile and WiFi to its mix in order to offer competitive quad play bundles and compete with cellcos.

Having failed with SFR, Bouygues is expected to pursue other acquisitions to improve its economies of scale. A merger with Free itself may be on the cards, but the smaller Virgin deal would be easier to get past regulators, since it would not reduce the number of network owners in France - one reason why Vivendi chose Numericable was to avoid the regulatory opposition which was likely to face a Bouygues-SFR deal, even though the former had offered to appease antitrust agencies by offloading much of its own spectrum to Free.

Meanwhile, the three main MNOs have also been using regulatory appeals to try to improve their woeful competitive positions. Bouygues and SFR have complained about Orange's hosting of the MVNO portion of Free's network, saying that has allowed the fourth player to be slack in meeting its own roll-out commitments.

And last week, Orange filed a complaint with the Competition Authority, seeking to block the mobile network sharing deal reached by SFR and Bouygues in early February. This deal includes 2G, 3G and 4G infrastructure covering 57% of the population. Orange wants a suspension until more in-depth rulings can be made by telecoms regulator Arcep and the Competition Authority. The latter is expected to impose conditions on the agreement late this year.

Orange argues that the sharing deal is anti-competitive because it covers 80% of French territory, dividing the country into large areas. One operator per region will manage the networks of both players, but the market leader says this will make them too inter-dependent and could lead to even closer sharing, notably of 800MHz spectrum. The deal will see about 7,000 base stations decommissioned, though the regulator may insist they are transferred to Free instead - if that is the case, Orange wants the chance to bid for them too.