France - Iliad and Alice

French IPTV leader to buy rival

France’s Iliad, owners of Gallic broadband TV operator Free, Europe’s biggest IPTV operator, will pull down a syndicated loan for just north of Euros 1 billion ($1.6 billion), mostly to buy Alice, Italia Telecom’s rival Internet TV player in France.

Iliad’s financing accord should clinch a deal between the two IPTV operators, continuing rapid DSL consolidation in France, by far Europe’s biggest broadband TV market.

Iliad has been holding exclusive talks for weeks with Alice, France’s number 4 IPTV operator after Free, France Telecom-Orange and SFR-Neuf Cegetel. Alice has an estimated 850,000 subs.

Not all the debt-financing may be used to buy Alice, which is valued at around $1.3 billion, including debt. The $1.6 billion credit-line was announced Wednesday by Iliad CFO Thomas Reynaud. Syndicated with eight banks, the loan will be closed in a couple of weeks, he added.

Iliad’s purchase of Alice makes much sense.

“Fiber optic deployment, spend on TV content and on consumer services are sustaining the pressure toward consolidation in France’s IPTV sector,” said Francois Godard, an analyst at London’s Enders Analysis.

Free’s 2.5 million IPTV enabled homes and estimated 1.4 million home connections means that Free has the largest IPTV base in the world.

But subscriber growth at triple-play operators such as Free, selling broadband, fixed line telephony and TV, is increasingly driven by the quality of companies’ TV package. This puts players under pressure to roll out high distribution-capacity fiber optic networks.

“Investment in new networks is extremely sensitive to penetration. Alice increases Free’s penetration, so profit prospects are strengthened by investment in fiber optic,” said Godard.

Consolidation is unlikely to stop with this purchase, however. SFR bought Neuf Cegetel in April. According to Godard, the Vivendi-backed SFR-Neuf may soon target cable network Numericable or Free itself in order to face off better with France’s biggest telco, incumbent France Telecom.