Bouygues Telecom is hoping to create a new French telecoms powerhouse with its €14.5 billion ($20.1 billion) offer for SFR. But it has a rival suitor in cable operator Numericable, and is also dogged by worries that anti-trust authorities could block the purchase.
Both Bouygues Telecom and SFR operate fixed-line, Internet and mobile networks.
By selling its mobile antennas and frequencies to Free, the smallest player in the French telecoms market, Bouygues Telecom stands to clear up concerns that its acquisition of SFR would undermine competition in the sector.
"We've entered into exclusive negotiations to cede our entire mobile network to Free for an amount of up to 1.8 billion euros," Bouygues Telecom CEO Olivier Roussat told the Journal du Dimanche newspaper.
"We're providing an immediate response to the competition requirements. In case of a merger with SFR, we would have one network too many. Here, there's a buyer that will recreate a competitive dynamic. This turnkey solution should facilitate our union with SFR and reassure Vivendi."
The deal, which includes 4G frequencies and 15,000 antennas, would be conditional on Bouygues Telecom buying SFR.
Vivendi is looking to split its business into two units, separating off SFR to focus on its media operations, which include Universal Music.
Numericable has not publicly disclosed its offer, but sources say it values SFR at €15 billion pre-takeover, while Bouygues puts it at €14.5 billion.
Orange, the current leader in the French mobile market, has 27 million clients. SFR has 21 million, Bouygues Telecom 11 million and Free 7.4 million.
Upstart Free sparked a price war with its aggressive entry into the market in 2012, but has a limited network and currently rents infrastructure access from Orange.