The future of SFR, France's second largest telco, is beginning to take shape: the company's owner Vivendi finally provided some guidance last week about the route it could take to rid itself of its French telecoms unit and streamline itself into a purely media business.
Last week, Vivendi announced it was to enter exclusive talks for three weeks with Altice about acquiring SFR. In doing so, Vivendi also managed to snub France's business establishment, upset a leading French minister, and even put telecoms billionaire Xavier Niel's nose out of joint. That's no mean feat, and reflects just how significant the future of SFR is for the French mobile market.
Vivendi has been investigating the right way to dispose of SFR, its telecoms unit offering fixed and mobile services across France, for some time.
Last November, Vivendi's board approved the spinoff of SFR. At the same time, speculation continued to mount that SFR was of considerable interest to a number of rival operators in the market: Numericable, the cable operator 40 percent owned by Altice; Iliad, the company founded by Niel, also behind mobile upstart Free Mobile; and Bouygues, the construction and telecoms group founded by Francis Bouygues and now run by his son Martin Bouygues.
Clearly impatient to get any offers on the table before pressing ahead with a possible spinoff and IPO, Vivendi set a deadline earlier this month for all potential bidders to show their hand.
Initially, Bouygues and Altice submitted very similar bids. Bouygues went on to improve its offer to €11.3bn in cash and a 43 percent stake for Vivendi in the company that would result from the merger of SFR and Bouygues own mobile operation Bouygues Telecom. It also reached a provisional deal to sell some mobile network assets to Iliad if it won approval to buy SFR.
Altice followed suit, increasing its bid to €11.75bn and 32 percent stake in the combined mobile entity, and the exclusive talks began.
That Vivendi has picked Altice, at least for now, appears to have deeply upset the French establishment. Industry minister Arnaud Montebourg said he preferred the Bouygues bid because he believes it would calm the "destructive competition" that has wrought havoc on the French mobile market since Free Mobile launched its sub-€20 plans in January 2012.
Seeing an opportunity to reduce the number of mobile operators to three from four, Orange has also spoken out in favour of Bouygues' bid.
It seems everyone apart from Vivendi wants to keep Altice out. Why? The company that would result from the merger of Altice's telecoms arm with SFR would be loaded with too much debt, said Montebourg.
The fact that Altice founder Patrick Drahi lives in Geneva and operates Altice out of Luxembourg is also clearly an irritant for France's politicians, who have even called for Drahi to move back to France if he buys SFR.
Unlike Martin Bouygues and entrepreneur Xavier Niel, Morocco-born Drahi is not part of the traditional French establishment, and has built up his Altice empire in Europe and the Caribbean through a series of strategic acquisitions.
In the process, he has focused on combining cable operators with mobile phone companies, as recently witnessed in the Dominican Republic where he acquired Orange Dominicana and cable operator Tricom.
In each other's arms
Ultimately, Vivendi has taken a pragmatic step: Altice's offer is regarded as having a better chance of getting regulators' approval, since it would mean that the number of mobile operators in France would stay at four.
However, there remains the possibility that Bouygues Telecom could still merge with Iliad, even if Numericable and SFR go on to form a new fixed and mobile powerhouse.
"It seems likely that one way or another Iliad and Bouygues will end up in each others' arms," Bernstein analyst Claudio Aspesi wrote in a research note.
Bouygues is currently the third-largest mobile operator in France, and is generally regarded as having suffered the most from Free Mobile's assault on the French market.
It also has limited fixed assets: it would have become a fixed and mobile player by joining with SFR, but if Altice wins SFR's hand instead, Bouygues Telecom will need a new solution.
Meanwhile Altice has already set out its plans to create a fixed and mobile "French champion" with an emphasis on converged service offerings.
Convergence is certainly the name of the game in Europe right now: it's also behind Vodafone's strategy that has seen it buy Ono in Spain, Kabel Deutschland in Germany, and Cable & Wireless Worldwide in the UK.
Altice said its desire for SFR are based on the conviction fixed-mobile convergence is a response to growing demand for data services, noting that there are on average 6.5 screens per French household in 2014, compared with four screens in 2009.
Numericable covers 9.9 million homes with its cable and fibre network, 5.2 million homes with fibre and has one million "very high-speed" fixed broadband customers. SFR has 57,000km of long-distance fibre lines and 1.6 million fibre homes, as well as a 3G and LTE mobile network.
"This industrial project will drive growth in all [the resulting company's] markets: in fixed residential (seven million customers), in mobile (as the number two operator with 21 million subscribers), in the business sector, where the new company will have a 20 percent market share, and in the wholesale sector," Altice said.
The company has also set the following objectives for the medium term: annual revenue growth of between two percent and five percent, an EBITDA margin of 40 percent and capex of around 20 percent of turnover. "Synergies expected by the creation of the new entity could reach €1bn of annual cash flow over time," Altice said.
More should be revealed about the progress of the exclusive negotiations between Altice and Vivendi in early April, and Bouygues announced yesterday that it has upped its bid for a second time, so may yet still be in the fight. Depending on the outcome, France could be on the brink of the second major shake-up of its mobile market since 2012.