Neuf Makes Acquisitions Count

Acquisitive French alternative carrier Neuf Cegetel Group (Euronext: NEUF) has propelled itself to second spot in its domestic high-speed access market with its broadband-focused spending spree.

In the past year, Neuf has bought AOL Inc. (NYSE: AOL)'s French broadband unit, French ISP Club Internet , Parisian fiber-to-the-home (FTTH) minnow Erenis, and tiny Pau-based service provider Mediafibre (3,000 customers), splashing out more than €750 million (US$1 billion) in the process. (See Eurobites: Buying & Selling, Neuf Cegetel Buys AOL France, Neuf Cegetel Closes Erenis Buy, and Neuf Acquires Mediafibre.)

Neuf closed the €465 million ($634 million) Club Internet deal last Friday (June 29), adding 600,000 broadband subscribers to its customer base in the process. It believes it can now turn around a "heavily unprofitable" business to one that can generate €60 million per year in earnings before interest, tax, depreciation and amortization (EBITDA) starting in 2009. (See Neuf Boasts DSL Base.)

Neuf says it now has 3,032,000 high-speed access customers, making it the French No. 2 with a market share of around 23 percent.

Orange (NYSE: FTE), naturally, retains the premier position: It has about half the market with its 6.3 million-plus subscriber base. Iliad (Euronext: ILD), for so long in second place with its successful Free business, now drops to third, with 2.5 million customers for a 20 percent DSL market share.

Telecom Italia (TIM) is the other main DSL service provider in France, with almost 900,000 DSL customers for its Alice Broadband service, giving it a 7 percent market share.

At the end of March this year, according to statistics from French regulator Arcep , France has 12.8 million DSL subscribers and a further 650,000 other high-speed access customers, most of which are cable subscribers at Numericable-SFR .

Now Neuf wants to solidify its position as the main challenger to France Telecom, and has, just like the national incumbent and Iliad, announced plans for an FTTH rollout as Europe becomes more fiber-friendly. It is also exploring the possibilities that WiMax can offer as a broadband technology alternative. (See Neuf Launches 50-Mbit/s FTTx, FT Fleshes Out FTTH , Iliad Updates on FTTH, 3G, and FTTH Council Sets Euro Target.)

Building on the experience acquired with Erenis, which has been laying fiber in Paris since 2003 and has more than 10,000 customers, Neuf plans to invest €300 million ($408 million) by the end of 2009 to pass 1 million homes in the French capital and other cities, and sign up 250,000 customers. It has started by launching a 50-Mbit/s service in Paris for €29.90 ($40.75) per month, with a 100-Mbit/s service to follow. (See Neuf Launches 50-Mbit/s FTTx.)

Ovum Ltd. analyst Jonathan Coham says a large number of customers is needed to make such investments pay off. Each of the French FTTH hopefuls "must secure a strong market share, and significant subscriber base in their areas, to enable the investment to pay-off through high yield value-added services."

He also notes that Neuf needs to move towards a unified brand if it wants to benefit from the advantages Iliad has built with its Free brand and FT with its now ubiquitous Orange name. Neuf, which is already encouraging Cegetel and AOL customers to adopt new service packages, says the Club Internet customers will be able to migrate to its "Neuf Box" package starting at the end of this year, and that it plans to have 90 percent of its customers using Neuf-branded services by the end of 2008.

Coham believes Neuf now has the market muscle and financial strength -- quarterly revenues of €780 million ($1.06 billion) and a partnership with mobile operator SFR -- to be a long-term player in the French market. (See Neuf Cegetel Reports Q1.)

The key question now, he believes, is whether Iliad, which generated revenues of €280 million ($382 million) in its most recent quarter, can retain its independence or find itself the focus of M&A advances. (See Iliad Reports Q1.)

Neuf Cegetel's share price ended Monday at €29.36, up just more than 1 percent. Iliad closed down nearly 3 percent at €72.89.

— Ray Le Maistre, International News Editor, Light Reading