What France Telecom Interest in Cross Selling Cable Tells You About the Market

France Telecom thinks it has to sell triple-play bundles, but wants to avoid making acquisitions to do so. Why it wants to do so explains much about the strategic context of European communications. 

Basically, the existing market for most fixed network voice, fixed network video entertainment and mobile services is shrinking slowly. When that happens, service providers are faced with higher overhead costs and stranded assets, every year, as fewer customers generate revenue on a fixed base of assets.

While it might make sense in some cases to make acquisitions, either to create more scale, enter a new geography or acquire a needed capability, in some cases an acquirer might not want to deploy capital in that way. 

In other cases, regulators might bar such acquisitions. 

So France Telecom (Orange) is considering cross licensing between itself and cable TV providers, for example. That would allow each party to sell triple-play bundles, a proven way to attract and retain consumer customers, at lower costs than outright acquisitions. 

That approach also arguably avoids significant capital investment (both in network facilities and licensing agreements). 

The point is that rational actors will invest differently in growing businesses than in static or declining businesses. And it is hard to avoid the conclusion that in Western Europe, both mobile and fixed network businesses are not growing. Whether they are static or declining is the relevant issue.