What does the $19.72B takeover bid for SFR mean for France's telecom sector

A €17 billion ($19.72 billion) joint bid by Bouygues Telecom, Iliad-owned Free and Orange for most of the assets of SFR, France’s second-largest telecom operator, could serve as a key test for Europe’s telecoms market, Reuters said in a report.

The non-binding proposal that could reduce the number of French network operators from four to three has been rejected by the parent company Altice.

However, bidders are intent on convincing Altice’s shareholders, including billionaire Patrick Drahi, to enter negotiations to seal a deal.

However, regulators have consistently opposed anti-competitive measures.

The so-called four-operator rule has been a red line across the EU, with fears that fewer players mean higher pricing and inferior service quality.

What is at stake for the EU telecom market?

When proposed mergers bundled four mobile operators into three, European Union antitrust authorities routinely attached onerous conditions (or blocked deals outright).

They have aimed to protect consumer choice and avoid price increases in markets where telecom services are ultimately a necessary utility.

Nevertheless, the call for change has been growing.

A report on EU competitiveness published last year urged regulators to take another look, arguing that Europe's patchwork telecom sector had caused it to fall behind international rivals.

The report called for a move that would enable scale, giving European firms a better chance of competing against US and Chinese giants that dominate infrastructure and investment worldwide.

According to Reuters, industry executives have reportedly expressed that Brussels should consider deals regionally rather than nationally and also long-term fracturing rather than an immediate market share.

If the SFR proposal goes ahead, it could show whether the European regulatory mindset is finally beginning to change.

How a potential SFR deal would be reviewed

Such an acquisition of Altice's French assets would almost certainly provoke the scrutiny of the European Commission.

Once a deal is filed, the Commission undertakes a preliminary 25-working-day review of a transaction.

That period can be extended by 35 days in order to assess proposed remedies, or to allow a member state to take over the review.

Although the Commission clears the great majority of mergers after a preliminary review, it occasionally undertakes a more detailed, second-stage review.

The process is a maximum of 90 working days and can be extended to 105 days if further assessment is needed.

Analysts say the Commission would concentrate on preserving competition in France's main telecoms segments while also making sure the infrastructure, particularly fibre networks, is opened up to new entrants.

French government's strategic role

If negotiations progress, the French government will have significant power.

Paris, Orange's largest investor and board member, wields both financial and political power over the outcome.

Finance Minister Roland Lescure has previously stated that he will be "extremely vigilant" about the potential impact on prices, jobs, and service quality.

The government's approach suggests that any permission may be contingent on agreements to preserve jobs and safeguard consumers, which would be consistent with broader national interests.