French regulator warns over competition in Orange-Bougues deal

PARIS (Reuters) - Any deal between French telecoms operators Orange and Bouygues must not hurt competition in the sector, the head of France's ARCEP telecom's regulator said in a newspaper interview.

Orange, France's biggest telecoms firm, is in talks to buy Bouygues Telecom, France's third-largest mobile operator, for about 10 billion euros (£7.6 billion) in cash and shares.

"I'm drawing red lines. If this deal takes place, it must not lead to further consolidation of Orange's position, especially in the markets where it is already a leader," ARCEP's head Sebastien Soriano told business daily Les Echos.

"Let's make sure we don't go backwards after opening the sector up to competition. Consumers' gains are still fragile," he added.

It is too early to say whether it will be the European Commission or France's competition authority which will vet the deal for antitrust issues. But if it is the French authority, then ARCEP would be called upon to give its opinion.

"We will be particularly attentive about the markets where competition is still limited, especially as regards business clients and rural areas," Soriano said.

"We have direct veto powers on operators' frequencies and we can block their transfer between operators if we consider it would upset the competitive balance," he added.

Orange has started informal talks with rivals Numericable-SFR and Iliad on possible asset sales to satisfy competition concerns in case it acquires Bouygues Telecom, sources close to the matter have told Reuters.

The talks include the potential sale of part of Bouygues Telecom's mobile spectrum, its customer base, network and shops, the sources said.

(Reporting by Gwenaelle Barzic; writing by Leigh Thomas; Editing by Richard Balmforth)