BRUSSELS — A €20 billion pact to carve up French telecoms company SFR is shaping up to become a major test of the EU’s readiness to abandon decades of caution and allow merger megadeals.

Operators Bouygues, Orange and Iliad agreed Saturday night on a three-way undertaking to acquire SFR from Patrick Drahi. The deal, the companies announced, would “strengthen the sector’s long-term capacity to invest, innovate, and anticipate major technological developments.”

The tie-up faces a lengthy path to competition approval — be it in Paris, Brussels or both. The outcome will reveal just how much the European Commission and national antitrust authorities are willing to accommodate the aggressive pursuit of industry consolidation as Brussels rolls out updated merger guidelines.

Commission President Ursula von der Leyen ordered the overhaul after a campaign by French and German bosses and politicians, who have never gotten over a 2019 Commission decision to block a proposed merger between trainmakers Siemens and Alstom.

“This is more than just another deal. It will test the EU’s current, evolving approach to merger control,” French Renew lawmaker Stéphanie Yon-Courtin said in comments to POLITICO. 

The Commission has historically retained control over telecoms mergers. But France’s competition authority may take an interest because of the SFR deal’s unusual structure, in which it is being divided up among multiple buyers.

Brussels is skeptical of “four-to-three” mergers — which reduce the number of telecoms operators on a national market — as officials find they tend to raise costs for subscribers. Such deals have in the past either been prohibited or faced stringent conditions.

But the tide has turned in favor of companies wanting to grow bigger in von der Leyen’s second term, following landmark advisory reports by former Italian PMs Mario Draghi and Enrico Letta that called for industry consolidation to boost the EU’s international competitiveness.

Yon-Courtin sees tension between Draghi’s call to create pan-European businesses and the SFR deal, which would increase concentration in one of Europe’s largest national markets.

“Telecoms is one of the sectors that Mario Draghi identifies as in need of consolidation, creating pan-European players to strengthen Europe’s competitiveness,” the MEP said. “But … the acquisition of SFR by the remaining French operators would reduce the number of actors in the French market from four to three, which will consolidate their national position and might have an impact on end consumers.”

Lobbying campaign

Telecoms companies have lobbied actively, claiming that only by merging with one another can they reach sufficient scale to invest in next-generation networks. 

“Consolidation is a strategic necessity in European telecoms and essential to delivering the Draghi-Letta agenda through greater investment,” said Alessandro Gropelli, head of trade association Connect Europe, soon after the SFR deal was announced. Earlier this year the group commissioned a report with sister association GSMA arguing that the EU should view telecoms mergers through a longer-term lens.

But the industry narrative backed by leaders faces opposition from antitrust regulators. EU competition chief Teresa Ribera told POLITICO in April that the restructuring of sectors like telecoms was being impeded by fragmented national markets — and not by the bloc’s merger rules.

Benoît Cœuré, who heads the French competition authority, appears to be on the same page. Speaking while the SFR deal was still in the making, he warned: “If it is a four-to-three merger in mobile telecom services, then it will, of course, raise competition concerns because it’s our job to protect consumers.”

Consumers are wary too. “The announced sale of SFR to Bouygues, Orange and Free is bad news for French consumers,” said Alexandre Biard of EU consumer association BEUC.

Biard recalled how the arrival of Iliad’s Free Mobile in 2012 had forced operators to cut prices in France by 30 percent and accelerated 4G network upgrades. “Going back to three operators will almost certainly reverse these benefits,” he said.

Paris is quiet

The verdict of competition regulators on the SFR deal will be an early test of the new merger guidelines, which call on officials to take a broad view of the rationale behind a deal and to consider, for example, whether it would enhance innovation or investment.

The transaction will also reveal just how much political pressure can influence merger assessments, should the deal run into headwinds with regulators. 

French President Emmanuel Macron has long advocated a more permissive merger review, having clashed with Brussels over the failed Alstom-Siemens deal. 

This time, so far, Paris is taking a muted approach.

Economy and Finance Minister Roland Lescure described the SFR breakup as “a deal that will shape the entire French and European telecom sector” and promised to monitor its impact on prices and jobs. But his office declined to comment further when POLITICO sought clarification on whether Paris backed the buyout and would defend it before the competition authorities. 

Marc Ferracci, a French lawmaker who was industry minister when talks on SFR were in full swing, welcomed the buyout as “a good thing.” The competition downsides need to be addressed, he told BFM radio, but achieving the scale needed to fund investment was “more important.”

According to Étienne Chantrel, former head of the French competition authority’s merger department, politicians are treading carefully because of the deal’s likely impact on consumer prices. 

“So far nobody in the political space has studied … the hard questions about what this means for the consumer,” he told POLITICO. “On that front, it’s going to be a tough sell.”

Francesca Micheletti reported from Brussels and Giorgio Leali reported from Paris.

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