(Refiled to remove extraneous text characters in headline)
* Orange-Bouygues tie-up would raise competition issues
* Government wants to reduce industry players to three from
* Deal could value Bouygues Telecom at 6 bln euros-source
* Shares in Bouygues, Iliad climb
By Gwénaëlle Barzic and Sophie Sassard
PARIS/LONDON, May 16 French telecoms market
leader Orange is in talks about a tie-up with Bouygues
Telecom, France's economy minister said on Friday after two
sources said the discussions could lead to Orange acquiring its
The discussions bring Orange, the former France Telecom
monopoly, into the frame for the first time in moves to
consolidate the industry, but other industry sources wondered
how far talks could go between the biggest and third-biggest
mobile service providers, given the likely antitrust hurdles.
They said the manoeuvering could be aimed instead at raising
the potential price of Bouygues Telecom for rival Iliad
, whose upstart 'Free' mobile service sparked a price
war two years ago.
Stephane Richard, CEO of 27 percent state-owned Orange, has
discussed the matter with Martin Bouygues, his counterpart at
Bouygues, the sources said.
A deal with Orange would value Bouygues Telecom at more than
6 billion euros ($8.2 billion), and by selling in return for
shares, Bouygues and its shareholder JCDecaux could
end up holding close to 10 percent of Orange, one of the sources
Bouygues Telecom and its conglomerate parent Bouygues
were the losers last month in a battle to buy
Vivendi's SFR, the country's second biggest mobile
network operator behind Orange.
Asked in a televison interview about reports of the talks,
French Economy Minister Arnaud Montebourg said "they exist" but
that there were "multiple discussions" taking place in the
industry. Orange also said in a statement that it was "exploring
opportunities" and favoured consolidation.
Montebourg has repeatedly said the government wants to
reduce to three from four the number of telecom players as tough
competition in the sector is hurting jobs and investment in
"We need to rebuild a telecoms sector that is in ruins,"
Montebourg said in his interview with BFMTV on Friday.
Since failing to push through Bouygues' plan to buy SFR,
bought instead from Vivendi by cable firm Numericable
and thereby leaving the number of network operators at
four, Montebourg has also said Bouygues Telecom should explore
tie-ups with other operators.
HOW WILL IT END?
"It's clear the sector will need to move one way or another,
either via tie-ups or by network-sharing deals. But will that
involve Orange, Free, Numericable?" said one industry source
with knowledge of the wide-ranging discussions.
"Anyone who can tell us how this will all end is very
Shares in Bouygues were up 3.4 percent on Friday, while
Iliad's stock climbed 5.5 percent and shares in Orange were up
"Bouygues wants to create an auction here. The government,
via Orange, wants to show it has a hand in this, and Iliad wants
to get hold of Bouygues Telecom's network, said a Paris-based
Bouygues executives said during a presentation of the
group's first-quarter results on Thursday that it was working on
further restructuring at its telecoms unit and exploring
potential tie-ups in the industry but its focus was on keeping
it as an independent business.
"Bouygues Telecom's priority today is to adapt to the
evolution of the market, and to pursue and finalise its
standalone strategy," Bouygues' chief financial officer Philippe
Marien said in a conference call.
"Afterwards, all scenarios are on the table ... All telecom
operators ... are considering all possibilities and all
opportunities ... Today, we are very focused on putting in place
our standalone plan."
But in an interview with the Financial Times this week
Orange's chief executive said Bouygues Telecom was "facing a
real challenge" and would have to restructure the company
(Additional reporting by Natalie Huet, Leigh Thomas and
Alexandre Boksenbaum-Granier; Writing by Andrew Callus; Editing
by Mark Potter and Greg Mahlich)