Updates throughout after deal agreed, adds comment from Orange CEO and French finance minister in paragraphs 6,22

By Gianluca Lo Nostro and Elvira Pollina

June 8 (Reuters) - A sweetened €20.45 billion ($23.54 billion) joint deal by Bouygues Telecom BOUY.PA, Iliad-owned Free and Orange ORAN.PA for France's second-largest telecoms operator SFR looks set to test the European Union's regulatory resolve.

The three companies said on Saturday they had agreed with Altice France to buy SFR, after their earlier €17 billion offer was rejected in October.

WHAT IS AT STAKE?

A successful deal for SFR, which is backed by billionaire Patrick Drahi, would shake up one of the most competitive telecoms markets in Europe. Operators in France have been locked in price wars for years, pressuring margins and revenue growth.

EU antitrust regulators, however, have imposed tough remedies and outright blocks on telecoms deals if the deals reduce the number of mobile network operators from four to three in a single country.

Regulators want to safeguard competition and avoid price increases. But a 2024 EU report on the bloc's competitiveness urged regulators to ease a stance that had resulted in a highly fragmented sector, and instead focus on helping businesses gain scale and compete with U.S. and Chinese rivals.

The European Commission has been looking to pan-European deal approvals to help boost scale, Reuters has reported.

WHO WOULD REVIEW AN SFR DEAL?

Each suitor must file its own separate antitrust notification with the authority that has jurisdiction over it.

Orange and Bouygues will file in France, as they generate more than two-thirds of their EU-wide turnover in France, exempting them from mandatory notification to the European Commission under EU merger rules.

Iliad, on the other hand, does not meet that threshold and will file in Brussels with the European Commission. Both regulators will then agree who will lead the merger review.

The European Commission has 25 working days after a deal is filed for a first-stage review. It may extend by 35 working days, to consider either proposed remedies or a member state's request to handle the case.

Most mergers win approval, but occasionally the Commission opens a detailed second-stage investigation for up to 90 additional working days, which it may extend to 105 days.

WHAT DOES THE FRENCH GOVERNMENT SAY?

Paris will play a key role in the event of a deal as the French government is Orange's largest investor.

As a board member, its influence can extend to talks, which could focus on job protection and the national interest.

Finance Minister Roland Lescure has said he will be "extremely vigilant", particularly on prices and service quality. On Sunday he said that the deal must be subject to a "thorough examination" by the competent authority to assess its consequences "on the market, the diversity of supply, and the competitive balance".

WHAT IS THE EXISTING FRENCH TELECOMS LANDSCAPE?

France has four telecoms operators, with Orange the market leader. This means it would only be able to acquire the smallest share of SFR, which has 19 million mobile subscribers and more than 6 million fibre customers.

The French market has undergone many transformations, with Orange itself being acquired by France Telecom in 2000.

In 2014, Vivendi sold SFR to Drahi's Numericable for 13.4 billion euros in cash and a 20% stake in the combined entity, forming Altice France.

Altice closed a debt restructuring last year that left Drahi controlling 55% of Altice France and creditors 45%.

Meanwhile Bouygues Telecom, which is seeking the biggest slice of Altice's business, has expanded through its acquisition of La Poste Telecom, adding 2.3 million customers in 2024.

Iliad entered the French market in 2012 under its budget brand Free, prompting stiff price competition.

The three carriers have proposed acquiring most of SFR's activities, except for its stakes in fibre assets and those in French overseas departments and regions.

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