Arcep president Sebastien Soriano is closely following the progress of talks that could see Orange snap up Bouygues Telecom for about €10 billion ($10.9 billion), and warned that any deal must not harm competition in the sector.
In an interview with French daily Les Echos, Soriano said he is "drawing red lines. If this deal takes place, it must not lead to further consolidation of Orange's position, especially in the markets where it is already a leader," he told the paper.
Soriano has now been head of France's telecoms regulator for a year and noted that the sector is coming to the end of a cycle that has seen the gradual opening up of competition.
"Let's make sure we don't go backwards after opening the sector up to competition. Consumers' gains are still fragile," he said.
Asked whether he had a favourable view of moving from four to three mobile operators, Soriano said Arcep "has no dogma" on the matter.
"What is new with this operation is that the incumbent buys one of its competitors. But nothing really surprises me in this sector," he added.
It's too early to tell whether the European Commission or France's competition authority would be responsible for regulatory oversight of the deal. If it falls to Paris, Soriano noted Arcep would be called on to provide its expert opinion.
"We will pay particular attention to markets where competition is still limited, especially among corporate customers and in rural areas," he said.
Orange and Bouygues Group confirmed in early January that they were in preliminary discussions over a possible merger between Orange and Bouygues Telecom.
The statements from the two France-based groups indicated that no decisions had yet been made. Bouygues Group further noted that a confidentiality agreement had been signed and more would be disclosed in due course.
CCS Insight analyst Kester Mann said at the time that regulatory scrutiny would be a major stumbling block to any deal.
"The combined market share of Orange and Bouygues (based on both revenue and subscribers) would be above 50 per cent, thereby creating a very dominant player. As such, significant concessions would almost certainly be placed on any deal. These could include divestment of spectrum, retail stores and/or other assets in a bid to maintain market competition. This could lead to intense and complicated negotiations with SFR and Free," he said.
Indeed, Reuters reported that Orange is holding talks with Free's parent Iliad and Numericable-SFR on possible asset sales, including part of Bouygues Telecom's spectrum, customer base, network and shops.
Arcep seeks end to France's mobile roaming and network-sharing deals
Orange, Bouygues Telecom confirm preliminary merger talks
Orange M&A rumours continue to swirl
Bouygues Telecom returns to network sales growth in Q3
French mobile operators invested €2.2B in networks in 2014, but rural challenges remain