(Reuters) -A 17 billion euro ($19.72 billion) joint bid by Bouygues Telecom, Iliad-owned Free and Orange for most of the assets of France's second-largest telecoms operator SFR could prove an acid test for Europe's telecoms market.

SFR parent Altice rejected the non-binding offer, which would see the number of French operators drop to three, but the bidders want talks with its shareholders, which include billionaire Patrick Drahi, to try to get a deal done.

However, regulators have long drawn a red line to maintain four operators per country, resisting pressure for consolidation to match more dominant U.S. and Asian competitors.  

WHAT IS AT STAKE WITH THE BID?

EU antitrust regulators have imposed tough remedies and outright blocks on telecoms deals that proposed reducing the number of mobile network operators from four to three in a single country market, with a view to safeguarding competition and avoiding price increases.

However, an EU report on the bloc's competitiveness last year 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.

This echoed some calls by sector CEOs for the EU to facilitate mergers by assessing deals on an regional rather national level and taking into account investment plans.

WHO WOULD REVIEW ANY SFR DEAL?

Acquiring Altice's French assets would likely face a review by the European Commission, which has 25 working days after a deal is filed for a first-stage review. 

It may extend 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.

The Commission would likely focus on preserving competition across several key segments of the French telecom market and ensure infrastructure remains accessible to new entrants, ING analyst Jan Frederik Slijkerman said.

Should a deal be agreed, it will reveal any changes in thinking at the anti-trust authorities, Berenberg analysts said.

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 said he will be "extremely vigilant", particularly on prices and service quality.  

HOW IS THE FRENCH TELECOMS SECTOR CURRENTLY MADE UP?

France currently has four telecoms operators, with Orange is the market leader. This means it would only be able only 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, which is now itself a target.

Altice closed a debt restructuring this month which has 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.