Iliad set to become fourth Italian mobile operator if Wind/Three merge

Iliad has signed an agreement to become Italy’s fourth mobile network operator, following successful discussions with Three Italia and Wind.

Following reports yesterday of ongoing discussions between the three parties, the French telco conglomerate has issued a statement confirming the agreement of terms which would see Iliad enter the Italian mobile market, should the European Commission approve the Three/Wind deal. The European Commission also needs to give the green light to this agreement, should it first approve the merger of Hutchison and VimpelCom’s Italian assets.

Should Iliad wind up entering the Italian market, it will come into direct competition with French media corporation Vivendi, which has spent a significant amount of energy and money in acquiring a growing stake in TIM (formerly Telecom Italia). In an ongoing series of strategic moves by Vivendi, it has accrued a level of ownership just under the threshold at which point a full takeover would be required (24.9%). Having clashed over strategic vision with Vivendi prior to its acquisition of a near-controlling stake, then-CEO Marc Patuano was effectively forced to step down, suggesting the new CEO Flavio Cattaneo is more sympathetic to Vivendi’s overarching ambitions.

Vivendi is also partnered with Italian media firm Mediaset, which provides premium and terrestrial TV services in Italy. A move into the Italian market by the former will form direct competition in the mobile market with the latter, and given Iliad’s success in deliver ISP and TV multiplay services in France a future fixed/TV play in Italy isn’t completely infeasible.

Confirming the agreement, Iliad was forced to address the level of financial interest founder and majority shareholder Xavier Niel holds in potential competitor Telecom Italia. Niel confirmed he does not currently hold any stake in voting rights or capital in TIM and has “only a marginal financial interest (of less than €25 million), which will be sold in the next few weeks. He fully supports Iliad’s operation to create a new mobile network operator in Italy,” Iliad said in a statement.

As part of the agreement with Three and Wind, Iliad will be acquiring an amount of spectrum not dissimilar to its operation in France. For €450 million, Iliad will be acquiring a set of 2×35 MHz 3G and 4G frequencies; including 2×5 MHz at 900 MHz, 2×10 MHz at 1800 MHz, 2×10 MHz at 2100 MHz and 2×10 MHz at 2600 MHz. Payment to the merged Wind/Three entity will occur over the course of two years commencing in 2017.

Iliad will also be acquiring several thousand macro sites in densely populated urban areas, as well as an agreement to either enforce a RAN-sharing agreement in rural areas with Wind/Three, or to acquire several thousand macro sites in those areas instead. Transaction values for towers and radio sites were undisclosed.

The operator, which owns Free Mobile in France, will be looking to utilise its experience in entering markets as the fourth player following its successful venture into the French market back in 2010. Since its launch, Free Mobile has grown quickly and consistently to become a significant challenge to third-placed Bouygues Telecom. According to Ovum’s WCIS mobile market tracker, Free Mobile held just 0.03% market share less than Bouygues, at 16% from end of Q1 2016. Orange is out ahead with 39%, with SFR running up with 29%.

Nonetheless, while the rest of its competitors in the French market have neither grown nor shrunk market share significantly, Free has managed to grab 3 percentage points of market share from its competitors over the past two years alone. Iliad will hope to transpose that success into the Italian market, in which a combined Wind/Three entity will just about pip TIM to top spot, although concessions made to the European Commission will likely see the divestment of customers in order to give a fourth player a bit of a leg up.