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Altice Sees Brighter Days in 4-Player France

European cable group Altice has expressed confidence that revenue trends in France's telecom market are improving, even though it sees little prospect of consolidation following the recent rejection of its offer for Bouygues, the country's third-biggest mobile operator.

Altice had hoped to merge Bouygues Telecom with its own Numericable-SFR business to create France's biggest mobile operator and reduce the number of players from four to three. But it could not persuade Bouygues Group to sell its telecom unit. (See Altice Queries Bouygues' Motives in Rejecting €10B Bid, Bouygues Says 'Non' to Altice and Altice Confirms Bid for Bouygues Telecom.)

During an earnings call with analysts earlier today, Altice CEO Dexter Goei said he believed the "file was closed" on takeover activity in France's telecom market, where a drawn-out price war has dented the profitability of some of the country's biggest players.

Despite that, Altice flagged a sharp improvement in profit margins for the second (April-to-June) quarter thanks largely to the success of its strategy in France, where it has been slashing costs and driving customers towards higher-speed fixed and mobile offerings.

Altice's overall sales fell by 2%, to €3.9 billion ($4.3 billion), compared with the same period last year, but EBITDA rose by 13%, to about €1.5 billion (US$1.7 billion).

In France, which accounts for more than 70% of Altice's revenues, sales dropped by 2.5% -- a big improvement on the decline of 4.5% in the first quarter -- while EBITDA rose by 18%, to about €1.1 billion ($1.2 billion).

Altice acquired SFR last year and has been able to realize major efficiency gains by merging the largely mobile operator with Numericable, the cable and broadband company that it already owned.

"We're the most profitable company in the telecom sector," Goei told analysts. "We expect margins to continue improving and revenue trends are improving."

Altice's update comes just a day after rival Orange (NYSE: FTE), France's biggest operator, flagged similar improvements in France, noting that domestic revenues fell by just 0.8% in the second quarter after dropping 1.8% in the first. (See Orange Touts Q2 Sales Recovery .)


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It also follows news of a strategic alliance between Altice and NextRadioTV, a media business owned by French entrepreneur Alain Weill.

In a company statement, Altice indicated that it would set up a new company with Weill that will "accelerate the development of multimedia projects in both France and other international markets."

In a complex deal, that company will make a bid worth about €607 million ($670 million) for complete ownership of NextRadioTV, ultimately leaving Weill with a 24% stake in an Altice subsidiary "dedicated to investments in media companies."

Goei said the ultimate aim was to reduce content costs and bolster the range of services that Altice can offer its customers.

"We can take a great platform like NextRadioTV and continue to invest in and improve on that product," he said. "We'll be able to replace existing content that is not valuable but very costly and do the same thing in other markets, especially where we are dominant on the TV side."

Owned by French-Israeli billionaire Patrick Drahi, Altice has recently emerged as one of the most acquisitive players on the global telecom stage.

Besides buying SFR, the company has also recently finalized a takeover of Portugal Telecom SGPS SA (NYSE: PT) and agreed to pay $9.1 billion for US cable operator Suddenlink Communications . (See Is Altice the Great US Cable Consolidator?, What's It All About, Altice? and Altice to Buy Suddenlink in $9.1B Deal.)

It is currently in discussions with US regulatory authorities about that deal but says it has not run into antitrust problems -- because it does not already have a presence in the US market -- and expects to close the transaction in the fourth quarter.

In June, Altice said it would carry out a financial restructuring to aid future takeover activity, setting up a Dutch holding company and a dual-class share structure. (See Altice Restructures to Support Takeover Moves.)

"One of the biggest reasons for doing the dual-class shares is to position ourselves for all constituencies on the M&A side in terms of our ability to use different types of capital and that will come into effect in the next couple of weeks," said Goei on today's call. "But there is nothing on the near-term horizon."

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

mendyk 7/31/2015 | 8:42:45 AM
Re: Too many oeufs in one basket Patrice -- I agree that there are areas that are underserved (as is the case in many countries, including the U.S.), but the cost of reaching those areas with wireline service is high, and the potential returns are fairly low. For those areas, wireless broadband is probably going to be the de facto solution. We hear so much about smaller markets like Singapore and South Korea being so far ahead in broadband deployment -- physical geography has a lot to do with that perceived leadership.
Patrice71 7/31/2015 | 3:09:30 AM
Re: Too many oeufs in one basket They need to tap into the "country side" market, french is a vast country and there are still lots of people without decent broadband, here in the wood yards we're happy if we have 1mb/s DSL !  people are willing to pay big bugs for 5mb/s ! (and yes it's not even that much!!!)
nasimson 7/30/2015 | 1:39:30 AM
Good for the French people It's good for the French people that the deal didn't go through. Fewer service providers would have resulted in lesser competition, higher prices, fewer choices.
mendyk 7/29/2015 | 12:13:48 PM
Too many oeufs in one basket It's pretty clear that Altice will need to expand into new national markets if it wants to have meaningful growth. The fact that 70% of its revenue is coming from a market with one too many competitors and a shrinking revenue base suggests no other alternative if acquisition of a competitor is out of the question.
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