In all of the news regarding the slow-moving possibility of a Sprint-T-Mobile merger, yesterday’s news that upstart French carrier Iliad made an unsolicited offer for T-Mobile USA came as a very welcome surprise to the contingent against a purchase of T-Mobile by SoftBank. However, following the initial confirmation of the offer, which even included a press release by the French carrier detailing the offer, deeper analysis reveals many potential stumbling blocks and the offer may have already been brushed off by Deustche Telekom according to additional reports long before Iliad’s announcement.
Iliad in France is in a similar position to the current T-Mobile as the upstart carrier with incredibly discounted pricing in the French market with its Free Mobile brand, which offers deeply discounted mobile and cable service, with such perks as a free service plan with unlimited messaging and 2 hours of voice service along with 2GB of data per month and included fixed line calling to over 100 countries when used in the French metropolitan coverage area, to give an example of what Iliad is willing to offer the market.
However, the current financial realities being faced by Iliad would seem to make both the offer and subsequent purchase all but impossible, as T-Mobile USA is worth much more than Iliad’s total net worth, despite Iliad promising to have the financing in place for the deal. The issue then lies in whether DT would want to take a lower value for T-Mobile USA, as Iliad is offering $33 a share for 56% of the DT stake, while the current framework for the Sprint purchase values 60% of the remaining DT stake at $40 a share.
Iliad’s Free Mobile brand was responsible for triggering a price war in France when it launched in 2012, enough that the entrenched carriers in Orange and SFR had no choice but to compete in what has since become a race to the bottom in terms of prices and service and introduced competition in a market that was known for inflated pricing and very little actual competition. However, that competition has also meant that profits and revenue have been a point of contention for the popular brand, with expansion proving difficult owing to lower overall revenue despite higher customer volume.
T-Mobile has so far refused to comment publicly on the Iliad offer. With SoftBank locking up the vast majority of bank financing for the long-planneed T-Mobile purchase, Iliad has also had to make do with less options for bank financing, with international banks HSBC and BNP readily making themselves available for financing the purchase, with the purchase attempt continuing to move forward despite the reports of rejection.