A visitor stops outside the entrance to a 'Free Center' mobile store, operated by the Free mobile-phone service, owned by Iliad SA in Paris, France, on Tuesday, Sept. 11, 2012. Iliad SA entered the mobile market under the brand name Free on Jan. 10 with discounted packages priced at 2 euros and 19.99 euros a month. Photographer: Balint Porneczi/Bloomberg
© Bloomberg

French telecoms billionaire Xavier Niel is exploring a move into the fiercely competitive British mobile market on the back of the proposed acquisition of O2 by rival Three.

Iliad, the French telecoms group controlled by Mr Niel, has approached Ofcom, the UK telecoms regulator, to express a “preliminary” interest in entering the market, according to people familiar with the situation.

A move to create a new UK mobile network operator would depend on acquiring telecoms infrastructure as a result of the £10.5bn the O2-Three merger, according to a person with knowledge of the situation.

The person added that antitrust authorities in Brussels were expected to force the combined group to sell or open its network to rivals as the market consolidates from four to three operators.

Iliad declined to comment.

Ofcom said that it did not discuss whether it had held meetings with companies.

Interest from Mr Niel’s telecoms group in the British market will worry rivals, given its record of offering low prices that deeply undercut existing offers.

The launch four years ago of Free, Iliad’s mobile offering in France, disrupted the market, leading to an intense price war that slashed profits among the existing three operators. Orange’s proposed acquisition of Bouygues Telecom is an attempt to reverse the effects of the introduction of the low-cost rival.

A similar deal is being proposed in the UK with the purchase of O2 by Three, the UK’s smallest mobile group, which is owned by Hong Kong’s CK Hutchison. If the deal were to go through, it would reduce the number of competitors from four to three.

However, the deal is set to be challenged in the next week by the European competition regulator, which will set out a range of objections given the potential loss of competition for customers as well as third-party mobile providers that use the two networks under wholesale contracts.

Margrethe Vestager, Brussels competition chief, has already raised strong objections to similar deals elsewhere on the continent.

Ms Vestager is likely to seek remedies that in effect lay the ground for the creation of another mobile operator by carving off parts, or guaranteeing access to, the network of the combined group, according to people familiar with the thinking at the EU regulator.

Iliad is not alone in positioning itself to take advantage of any changes, which would need to be volunteered by Hutchison to meet concerns that will be laid out in a statement of objections due in the next week.

British rivals such as Sky and TalkTalk are also hoping to be able to acquire the infrastructure in a forced sale, or at least the rights to use a defined share of the network owned by Three/O2 under agreed terms, as a means to launch more fully fledged mobile services.

Xavier Niel, founder of French broadband Internet provider Iliad, visits the 42 school campus in Paris, France, October 27, 2015. The French school 42, a private French computer programming school, was created and funded by Xavier Niel. REUTERS/Benoit Tessier
Xavier Niel © Reuters

However, Hutchison is unlikely to agree to creating a rival mobile network that would remove the consolidation benefits of acquiring O2, which is likely to mean weeks of negotiations between the two sides to find common ground.

The failure to agree terms forced a similar deal in Denmark to fall through last year.

Mr Niel’s interest in the UK is the latest sign of his ambition to expand beyond France. Iliad made a surprise offer in 2014 to acquire a majority stake in T-Mobile US, the US telecoms business controlled by Deutsche Telekom. Mr Niel has more recently taken a stake in Telecom Italia.

Additional reporting by Adam Thomson in Paris

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