France's Orange says it has reached a deal to buy Spanish fixed line telecommunications operator Jazztel Plc in an effort to bolster its mobile operation the country. Sonia Legg asks if it will help it better compete with rivals Telefonica and Vodafone.
Spain's telecoms sector has been having a hard time - thanks to tough competition, falling prices and deep recession. A call to Jazztel from Orange came as no surprise. Quentin Webb is from Reuters Breakingviews. (SOUNDBITE) (English): QUENTIN WEBB, ASSOCIATE EDITOR, REUTERS BREAKINGVIEWS, SAYING: "It is a necessary deal - Orange risked being left behind in Spain because it's two biggest competitors were able to offer what's called quad play, fixed and mobile services and broadband and tv. And it was largely a mobile operator so it had to do this deal but the price is expensive." The French group has offered to buy all of Jazztel's shares for 13 euros each - that's around a third more than their market value of recent weeks. The agreement values the Spanish firm at 3.4 billion euros. But it still needs regulatory approval and the backing of at least 50% of shareholders. (SOUNDBITE) (English): QUENTIN WEBB, ASSOCIATE EDITOR, REUTERS BREAKINGVIEWS, SAYING: "There were two, what we call, maverick operators in Spain both Jazztel and the small mobile operator called Yoigo and what they were doing was having low prices to better compete and get market share and as you get consolidation everyone tends to be more considered in their price offerings". Orange expects to save 1.3 billion euros by merging with Jazztel. It needed to act after Vodafone - the second biggest mobile network operator in Spain - agreed to buy cable operator Ono for 7.2 billion euros. (SOUNDBITE) (English): QUENTIN WEBB, ASSOCIATE EDITOR, REUTERS BREAKINGVIEWS, SAYING: "This trend of convergence-led m&a has already spawned a whole lot of deals not only in Spain but also in France and Germany - in fact we just saw one yesterday in the Nordics - and that is defintiely something that is going to continue." Shares fell slightly on news of the deal - but they may have fallen further without it. Credit rating agencies Moody's and Fitch both put Orange on negative outlook in January over concerns about falling profitability in France.