BT pays pounds 1.1bn for foothold in France

BT's long hunt for a foothold in the huge French telephones market ended yesterday with a pounds 1.1bn agreement with Compagnie Generale des Eaux, the giant utilities group.

The cash payment buys BT a 25 per cent stake in Cegetel, a newly formed company which aims to become the main competitor to France Telecom, the state-owned operator, when the French market is opened up to competition in 1998. It also plugs a crucial gap in BT's network of European alliances secured over the past three years, which include Germany, Spain, Italy and most recently the Netherlands.

In addition, BT has gained a valuable head start in France over AT&T of the US, which had been courting Compagnie Generale des Eaux (CGE) after being refused permission to take part in the alliance between France Telecom and Deutsche Telekom. The US group declined to say why the talks with CGE had failed, apart from a statement explaining that the two sides had not "been able to reach a shared vision".

Cegetel, which has been valued at pounds 4bn, will start life as a mobile phone operator through ownership of 80 per cent of SFR, France's second-largest cellular phone company, in which CGE already has a large stake. SFR, which is due to become profitable in 1998, has 700,000 customers in the under- developed French mobile phone market.

In a complex arrangement CGE will gain a 50 per cent stake in Cegetel, with 15 per cent going to South Western Bell, the US operator, and the remaining 10 per cent taken by Mannesmann, the German industrial group.

Sir Peter Bonfield, BT's chief executive, would not reveal how much cash the other partners had injected, but he disclosed that BT's pounds 1.1bn injection was the largest single cash payment. BT's stake also includes the assets of BT France, which employs 100 people in Paris.

Sir Peter brushed off suggestions that BT had paid too high a price for the stake in Cegetel in its rush to find a partner in France. "We're not desperate to get into the French market... it's not short-term desperation, it's long-term planning," he said.

The second phase for Cegetel would be to apply for a licence to operate a fixed phone line network, offering services first to business customers and then at a later stage to higher-spending households. Sir Peter said the ambitious long-term target was to take between 15 and 25 per cent of the total French phone market, currently the second biggest in Europe and worth pounds 15bn last year.

The drive to build a fixed network could include building Cegetel's own fibre optic cable infrastructure and the leasing of capacity from existing networks. CGE already owns a cable television network though this would not be included in Cegetel's assets. Cegetel would also take services under contract from Concert, BT's global business communications venture with its US partner, MCI.

The deal brings BT into unlikely partnership with Vodafone, its arch- rival in the UK mobile market, which owns 16.5 per cent of SFR and has an option to purchase another 3 per cent. Earlier this year Vodafone paid pounds 300m to buy a 6.5 per cent of SFR, which effectively valued the French company at pounds 4.6bn. This would put a value of pounds 3.7bn on Cegetel's 80 per cent stake.

Analysts said the pounds 1.1bn cash price was fair, given the credentials of CGE as France's leading multi-utility empire. "There's nothing outlandish about this deal at all. BT has paid the going rate to get a credible partner in France," said one leading analyst.

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