French operators Orange and Bouygues Telecom have confirmed that they are engaged in discussions preliminary to consolidation. Orange said in a statement that the talks are not limited by any timetable, nor do they presume commitment to any particular outcome. Orange added that it will act solely in the interest of its shareholders, employees and customers and will be vigilant with regard to the value created through any resulting project. Bouygues confirmed that a confidentiality agreement had been signed by the two companies as they look at various options and said more information will be disclosed as the discussions progress.

Tarifica’s Take

Rumors of merger talks between Orange and Bouygues have been percolating since early December of 2015. France’s telecom market has been seeing very high levels of competition and falling prices since the entry of a fourth operator, Iliad’s low-priced operator Free in 2012. When Orange CEO Stéphane Richard suggested in September that the French market would benefit from consolidation, it did not appear that his company would make the move; now it appears that it at least taking a big step in that direction.

Orange, the country’s largest operator, has been less affected by the price war than number-two Numericable-SFR and number-three Bouygues. If the merger were to take place, the combined entity would be in a very strong position indeed, with Orange way ahead of the competition. So much so, in fact, that the deal would create regulatory concerns that might only be assuaged by Orange and Bouygues selling off significant assets. Last year, when Altice, the parent company of Numericable-SFR, made a bid for Bouygues (which Bouygues eventually rejected), the French government’s economy minister opposed the deal on that grounds that it could create an entity “too big to fail.” If Orange and Bouygues do come to terms and the deal is approved, the merger would take its place on the growing roster of major telecom acquisitions in Europe over the past two years.