Iliad Buys Into French FTTH

French competitive carrier Iliad (Euronext: ILD) has kick-started its aggressive fiber-to-the-home (FTTH) strategy with the acquisition of Parisian fiber network operator and triple-play service provider CiteFibre for an undisclosed sum.

Iliad, best known for the cheap triple-play offering it markets through its retail business Free , has regularly been one step ahead of its rivals during the past few years. While competitors such as Orange (NYSE: FTE) have been sizing up FTTH and considering their plans, Iliad last month announced plans to spend €1 billion (US$1.26 billion) over six years on a nationwide FTTH rollout. (See Iliad Plans €1B FTTH Build, Iliad Gets Active With FTTH, and France Telecom Plans FTTH.)

So today's acquisition news is logical. "Iliad wants to cable up Paris and this will give it a start, as CiteFibre has already begun the process," says Graham Finnie, Senior Analyst at Heavy Reading, and author of a recent report on FTTH. "And it will prevent the two companies stepping on each others' toes." (See FTTH Hits Mainstream and FTTH Surge Coming.)

The European team at Lehman Brothers also noted the move, saying it "will enhance Iliad's expertise in rolling out fiber."

But there's a competitive element to the acquisition, too, as it will also stop CiteFibre falling into other hands. Iliad noted that CiteFibre struck the deal "after considering a number of different takeover bids," while recent local reports had suggested Neuf Cegetel Group (Euronext: NEUF) as a suitor. Neuf is already in the process of bolstering its broadband business through acquisitions. (See Neuf Cegetel Heads for IPO and Neuf Cegetel Buys AOL France.)

CiteFibre is only two years old and has only 25 on staff, but it has 3,000 kilometers of fiber laid in Paris, has connected 130 buildings (representing 4,000 households) and 500 customers, and is licensed to connect a further 4,000 homes.

In his report, Finnie noted that CiteFibre's network enables 100 Mbit/s per subscriber, and offers triple-play packages including voice, high-speed Internet access and various video services (IPTV, video on demand) for up to €59 ($74.40) per month for its premium service.

CiteFibre, notes Finnie, is using existing fibers and ducts belonging to the Métro subway system, and had planned to pass 100,000 households by 2007.

Iliad, which has repeatedly reported profits during the past two years and which has built itself a 20 percent share of the French broadband market, says the terms of the deal "will have no significant impact on Iliad’s income statement, balance sheet, or cash flow statement." (See Iliad Reports 1H06 and Iliad Profits From Triple Play.)

Iliad's share price closed up 2.6 percent today at €63.10. The company floated on the Paris stock exchange in January 2004, when its shares joined the market priced at just €16.30. (See Investors Go Mad for Free Shares.)

— Ray Le Maistre, International News Editor, Light Reading

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