PARIS: The French telecom sector is in a new round of turbulence, with two takeovers in the air.

Shares in the Bouygues group and in Orange, formerly France Telecom, rose sharply on Friday on strong signs that a tie-up that would result in the number of mobile operators dropping from four to three is possible.

This comes in a context of recent big deals in the wider European telecom sector.

The French Bouygues conglomerate, with interests in construction and television, is now in talks to sell its loss-making telephone subsidiary Bouygues Telecom to Orange, a source close to the matter told AFP.

Bouygues is acting on the rebound after losing out in a bitter bidding battle to win control of ailing SFR, which French media giant Vivendi had put up for sale.

Also on Friday, small upstart cable operator Numericable, owned by Altice, fresh from winning the battle for SFR, pounced again, announcing it was in exclusive talks to buy Virgin Mobile.

The talks were on the basis that Virgin Mobile, which does not have a network of its own, and its parent Omea Telecom, were worth 325 million euros ($445m).

Virgin Mobile, with 1.7m customers, operates by renting transmission capacity from operators such as SFR or Orange.

Numericable, in buying Virgin, would therefore be able to improve the usage of its own infrastructure.

“It is a race for size, and for economies of scale which will help to absorb the cost of investment in networks, and also in a way to prevent the competition from enlarging its client base,” said Philip Pestanes, a telecoms expert at management consultancy Kurt Salmon.

The same factors are driving the reported talks between Bouygues and Orange, formerly the French state monopoly France Telecom.

French Economy Minister Arnaud Montebourg has said he thinks that the French market can only support three big operators, but consumer groups argue that the new high level of competition has broken up cosy market shares and brought lower prices and better conditions consumers.

Orange has 27m mobile phone and 10.1m fixed-line customers in France, as well as a big international reach.

SFR has 21.3 mobile customers and 5.3m Internet service subscribers.

SFR-Numericable will have about 28.3 customers overall, of which 1.7m come from the smaller Numericable.

Free, the irreverent player which has disrupted the market and provoked the deal-making with a price war, has 14.3m customers, overtaking Bouygues Telecom with 11m mobile and 2.1m fixed-line clients.

Published in Dawn, May 17th, 2014