Numericable acquired France’s second biggest telecom company SFR just last year, but the new telecom giant is back on the acquisition market. This time, its target is Bouygues Telecom, the waning third telecom company. Numericable-SFR is willing to pay $11.4 billion to acquire Bouygues Telecom (€10 billion) and sell some of its frequencies, shops and a part of its network infrastructure to Free.
This is interesting for a couple of reasons. Last year, when SFR was acquired by Numericable, the French Government wanted to make this market less competitive to avoid radical price cuts and layoffs. In other words, after a big race to the bottom led by disruptive telecom company Free, the Government wanted to stabilize phone plan prices and foster infrastructure investment. That’s why the Government wanted Bouygues to buy SFR instead of Numericable. It would have reduced the number of mobile network operators from four players to three.
This time, thanks to a very favorable bond market, it’s the other way round. Numericable (now called Numericable-SFR) wants to buy Bouygues Telecom. But the Government is afraid that things could turn around with such a big amount of debt. If Numericable-SFR-Bouygues can’t convince subscribers to stay, there could be some very damaging consequences, such as significant layoffs. Moreover, phone plan prices are no longer going down, meaning there is no reason to move back to three telecom companies.
As a reminder, Bouygues Telecom has been in a tough position for a while now. It doesn’t have enough subscribers to heavily invest in its infrastructure like Orange or SFR, and has too many employees to keep healthy margins like Free. In other words, Bouygues Telecom is stuck in the middle.
That’s why it’s been trying to rethink its innovation strategy while laying off a significant part of its staff. Selling to Numericable-SFR is a logical way out now that it has become so hard to generate profit in this competitive industry.