Altice's just-announced bid for Bouygues Telecom is sure to provoke some Gallic chagrin within the corridors of ARCEP, France's telecom regulator. (See Altice Confirms Bid for Bouygues Telecom.)
Only last week, Arcep published detailed proposals for a 700MHz auction that bluntly assume France will remain a four-player market in the foreseeable future. (See Eurobites: Vivendi to Up Stake in Telecom Italia.)
Having provided examples of numerous scenarios in which four players battle it out for 700MHz licenses, ARCEP may be worried that imminent consolidation will reduce the auction proceeds.
The French regulator plans to structure its process so that participants reduce the number of spectrum blocks for which they are bidding as prices rise. When the aggregate number of blocks attracting bids falls to six -- the full amount available -- the auction will end.
Clearly, the auction is bound to arrive at the magic number of six far more quickly with three participants than four. And that means takings may be far less than originally hoped for.
There can be little doubt that French authorities have been anticipating something of a windfall from the 700MHz auction. Bidding is to start at the reserve price of €416 million ($474 million) per spectrum block, which means the government will raise at least €2.5 billion ($2.85 billion) if all the spectrum is sold.
In its headline example, however, ARCEP sees four bidders divvying up the concessions at a cost of €501 million ($571 million) per block, or more than €3 billion ($3.42 billion) overall.
That is way in excess of the €1 billion ($1.14 billion) that Germany's three mobile network operators spent on 700MHz licenses during a multi-band spectrum auction last week. (See Vodafone Big Spender in $5.8B German Auction.)
Of course, assuming authorities allow the deal to proceed, Altice may have a long time to wait before it is able to acquire Bouygues Telecom -- the UK's BT Group plc (NYSE: BT; London: BTA) does not expect to complete a £12.5 billion ($19.8 billion) takeover of mobile operator EE until early next year -- and ARCEP plans to hold its 700MHz auction before the end of the year. (See BT, EE Defend $19.9B Merger Plans.)
But the prospect of consolidation could force ARCEP into a rethink.
As things stand, Altice's Numericable-SFR business and Bougyues are each allowed to bid for two of the six available 700MHz blocks, or 2x10MHz in total.
Each player already controls 2x20MHz across the 800MHz and 900MHz bands, and the sub-1GHz holdings of any company must not exceed 2x30MHz at the conclusion of the auction.
Yet if Numericable-SFR and Bouygues should each secure two 700MHz blocks and then merge their operations, the resulting entity would control two thirds of the 700MHz band and clearly breach these limits.
Occupying a similar frequency position to each of those players, Orange would also be able to bid for two blocks in the 700MHz band, while Iliad would be entitled to bid for three blocks -- half the available spectrum -- because it holds no 800MHz licenses and just 2x5MHz in the 900MHz band.
Nevertheless, there is a risk the market ends up skewed in ways ARCEP never intended.
Germany has just been able to resolve a frequency imbalance resulting from the merger of Telefónica Deutschland GmbH and E-Plus Service GmbH & Co. KG through the re-auction of 1800MHz licenses. Might France be heading in the opposite direction?
— Iain Morris, , News Editor, Light Reading