The French government stepped up efforts to drive consolidation of the telecoms market in a bid to avoid further job cuts, after Bouygues Telecom revealed this week that it plans to cut 1,516 jobs after the failure of talks to merge with one of its rivals.
The French operator said it would cut 17 per cent of its workforce as part of a broader transformation plan to help it survive in a market with four mobile players. At the same time, analysts suggest that Bouygues Telecom's "aggressive plan" is in fact designed to bring consolidation to a head, and believe that a merger is still very much on the agenda.
Economy Minister Arnaud Montebourg said during a conference in Paris this week that France's operators should agree on a deal that would make such job cuts unnecessary and reduce the effects of the mobile price war that was sparked by the arrival of low-cost plans from Iliad-owned Free Mobile in January 2012.
Bouygues Telecom has suffered the most from these cheap mobile deals, and has seen its turnover fall by 26 per cent over two years, while costs have increased by 10 per cent. The company also incurred an operating loss of €19 million ($25.7 million) in the first quarter of 2014. Bouygues Group's plan to buy SFR and merge it with Bouygues Telecom, thus reducing the number of operators on the market to three from four, was also scuppered by Vivendi's decision to sell its French telecoms unit to Altice.
Altice now plans to merge SFR with its cable unit Numericable, maintaining the number of mobile operators at four and creating a more formidable competitor for the likes of Bouygues Telecom and Orange.
Meanwhile, Orange and Iliad are understood to have discussed the possibility of buying Bouygues Telecom, but so far to no avail, much to the frustration of the government. According to Bloomberg, Orange secretary general Pierre Louette said the company was unable to agree a deal with Bouygues that would "repair" the French market.
"Orange is one option, but there is also Free--it's about time these carriers agreed," Montebourg said, reported Bloomberg. "The state isn't the decision maker in this matter, but we'll use all means at hand to consolidate to three carriers in France."
According to Jefferies equity analyst Jerry Dellis, the move by Bouygues Telecom can in fact be seen as an aggressive plan designed to put pressure on the government and rivals to bring consolidation to a head. "The consolidation agenda is still very active," said Dellis in a research note. "Bouygues needed to present a disruptive strategy [after its meeting with union leaders on Wednesday] to convey the impression that it is prepared to go it alone, and to instil concern in government (and rivals) about what this outcome would entail for market pricing and employment."
As well as the job cuts, Bouygues Telecom also plans to remain "the benchmark operator' for 4G by continuing to invest in the mobile network; reset the price benchmark for broadband; and strengthen customer service by modernising the current network of stores and shielding customer advisers from redundancy.
Dellis noted that no new fixed broadband (FBB) prices were unveiled this week, but said Jefferies expects to see new tariffs by the end of June.
"Bouygues has been quite transparent about its willingness to ramp up its challenger tactics in FBB (where it has 8 per cent market share) to offset pressure in mobile. Instilling some discipline into Iliad (which derives c.40 per cent EBITDA margins from wireline) seems to be the core focus," the Jefferies analyst added.
A price war on the fixed market would be more than the government could stomach, however: "After mobile price wars, what's the point of starting fixed price wars?" Montebourg said, according to Bloomberg. "The government doesn't accept this. We're keeping a long-term vision and have France's general interest at heart."
For more:
- see this Bouygues Telecom statement
- see this Bloomberg article
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