​Iliad allies could sweeten bid to buy T-Mobile USA

The French company doesn't want to pay more on its own, but is rounding up allies to help persuade Deutsche Telekom to sell its controlling interest in the US carrier.

Iliad founder Xavier Niel
Iliad founder Xavier Niel speaks in 2014. Stephen Shankland/CNET

Iliad, a French company with growing businesses as an Internet service provider and mobile operator, said Monday it's working with partners to make a more lucrative bid for T-Mobile USA.

Germany carrier Deutsche Telekom wants to sell its majority stake in the US subsidiary but rejected a July 31 offer of $15 billion, or $33 per share, reportedly signaling that $35 per share would be better received.

Now Iliad Chief Financial Officer Thomas Reynaud said at a Paris press conference that Iliad's offer "could evolve." Iliad is in talks with partners that could raise the total bid, Reuters reported. Iliad would limit its investment to $15 billion and settle for a smaller share, Reynaud indicated. Iliad shareholders in effect expressed skepticism about the wisdom of the deal, sending Iliad stock down by 8.8 percent Monday to €152.45 ($200.20).

If the deal should eventually go through, it could reshape the US mobile market. T-Mobile USA already positions itself as the "un-carrier," the mobile operator that behaves in customer-friendly ways while its rivals do the opposite, but Iliad's French network operator, Free Mobile, has in some ways been more ambitious.

Iliad's Paris headquarters sport the Free brand used for its ISP and carrier businesses.
Iliad's Paris headquarters sport the Free brand used for its ISP and carrier businesses. Stephen Shankland/CNET

Iliad launched Free Mobile in January 2012 with two aggressively priced offers: €2 ($2.63) per month for 120 minutes of calls, 50MB of 3G or 4G data, and unlimited text messages; or €20 ($26) per month for unlimited calls and text messages, and 20GB of data. The prices drop to free and €16, respectively, for customers of Free's broadband Internet service, and Free shares T-Mobile USA's fondness for plans that don't require long-term commitments.

"Americans do not know yet how much more they pay than the Europeans," said Rudolf Vanderberg, an analyst with the Organization for Economic Cooperation and Development (OECD) in Paris.

European network operators faced with fierce competition should rejoice at Iliad's attempt to expand into the US instead, Vanderberg added. "It would keep them out of the rest of Europe for the coming five to ten years," he said.

On the broadband front, Iliad's Free division includes 180 TV channels and has been pushing to move its customer base to fast fiber-optic infrastructure.

In its report Friday of financial results for the first half or 2014, Iliad reported it increased Free Mobile subscribers from 8 million in December 2013 to 9.1 million June 2014. That's only enough to give it 13 percent share of the French market, but it also accounted for 65 percent of the net total of new subscriptions for the period.

Its broadband business grew much more slowly, with subscribers increasing from 5.6 million to 5.7 million. Overall, Iliad's revenue increased by 10 percent to €2.02 billion ($2.65 billion), but its profit dropped by 1 percent to €140 million ($184 million).

Iliad logo
Iliad logo Iliad

For its part, T-Mobile USA in July posted a $391 million profit for its second quarter and attracted new customers. Without a spectrum licensing deal with rival Verizon, however, it would have posted a loss.

Iliad and Deutsche Telekom didn't respond to requests for comment.

T-Mobile USA has been in play for years, with regulators squashing AT&T's attempted acquisition and a bid from Sprint owner SoftBank rumored for months.

Updated 12:37 a.m. Sept. 2 with analyst comment.