French telecoms deal tests EU merger policy

A significant €20 billion pact to carve up the French telecommunications company SFR among its rivals Bouygues, Orange, and Iliad is poised to become a critical test for the European Union's approach to merger control. Announced on Saturday night, the deal aims to consolidate the French market and is being closely watched to see if Brussels and Paris will permit such heavyweight consolidation.

The European Commission, under President Ursula von der Leyen, is reviewing its merger guidelines, partly in response to calls from French and German business leaders and politicians who felt previous decisions, like the blocked Siemens-Alstom merger in 2019, were too restrictive. This deal will gauge the EU's readiness to embrace larger mergers to enhance European competitiveness, a concept championed by former Italian Prime Ministers Mario Draghi and Enrico Letta.

However, the proposed transaction faces scrutiny from antitrust authorities. The European Commission has historically been skeptical of 'four-to-three' mergers in the telecom sector, as they tend to increase costs for consumers. French competition authorities also may take a particular interest due to the deal's unusual structure, involving multiple buyers dividing a single company. Consumer groups, like BEUC, have voiced concerns that this consolidation could reverse the price reductions and service improvements spurred by increased competition in the past.

Telecom companies have actively lobbied for consolidation, arguing it is necessary to achieve the scale required for substantial investments in next-generation networks. Trade associations like Connect Europe have supported this view, commissioning reports that advocate for a longer-term perspective on telecom mergers. Despite these industry arguments, EU competition officials like Teresa Ribera have suggested that fragmented national markets, rather than merger rules, are the primary impediment to sector restructuring. French officials, including Economy Minister Roland Lescure, have stated they are monitoring the deal's impact on prices and jobs, but the government's explicit backing remains muted.