To say that investors in French telecom operators are disappointed that Orange and Bouygues called off their talks is an understatement. Shares in the two operators, as well as domestic rivals Iliad and Numericable-SFR, lost a collective seven billion euros in early trading on April 4.
It's easy to see why investors expected the deal to happen, even after the pair had missed an earlier deadline. Shrinking the market from four operators to three would have helped relieve a long-standing price war. Analysts had pencilled in billions of estimated synergies from scrunching together Orange and Bouygues. SFR and Iliad were in talks to buy valuable assets in order to clear antitrust hurdles.
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One lesson: personalities matter when it comes to merger negotiations. Bouygues is the brainchild of its Chairman, Martin Bouygues. He would have become the second biggest shareholder in Orange after the French state. But he felt humiliated by some of the demands made by the government, including a cap on his stake for seven years, Reuters reported. Meanwhile, Bouygues was increasingly mistrustful of the two other powerful players with big personalities: Xavier Niel, the founder of Iliad, and the owner of SFR, Patrick Drahi.
So Bouygues is unlikely to take part in consolidation any time soon. Is that good for consumers? The scale of the market reaction also suggests that they might be now better off because prices are unlikely to rise. But a more rational market might have allowed existing players to invest more in networks as data usage increases, and so deliver better service.
This does not bode well for telecom consolidation in Europe. There have been several failed deals in the sector in past months, including a merger in Denmark and a potential deal between Vodafone and Liberty. Brussels is scrutinising Hutchison's 10.3 billion pound bid for Telefonica's UK arm O2. The sector's big question - whether mergers really do leave end-users better off - will have to wait for a definitive answer.
