Vivendi SA (VIV) plans to reduce operating expenses at its SFR mobile-phone unit by as much as 450 million euros ($582 million) this year through firings, cuts in marketing spending and renegotiating contracts with call centers, according to two people with knowledge of the matter.
Top executives have decided on SFR’s budget, with the cost reductions aimed at offsetting a projected earnings decline of 12 percent in 2012, said the people, who asked not to be identified because the plan is confidential. Vivendi in March predicted SFR’s earnings before interest, taxes, depreciation and amortization would fall between 12 and 15 percent this year.
The executives have conducted internal briefings in the past week, although they didn’t address how SFR plans to stop customer defections to Iliad SA (ILD), the discounter that began services as France’s fourth mobile-phone operator this year, the people said. SFR last week hired Vodafone Group Plc (VOD)’s European head, Michel Combes, as chief executive officer. Combes will start in August and spearhead the turnaround of Vivendi’s largest division, with more than 12 billion euros in revenue.
SFR’s unions said yesterday in separate e-mailed releases that the unit is working on a plan to eliminate more than 500 positions in France, where SFR employs about 10,000 people.
Nicolas Chatin, a spokesman for SFR, declined to comment on the cost-cut targets or the union statements.
Ad Spending Cut
Vivendi fell 1.4 percent to 12.86 euros at 11:20 a.m. in Paris, bringing the decline to 21 percent this year. Iliad dropped 0.1 percent.
Vivendi, which is scheduled to release first-quarter earnings on May 14, has halted projects at SFR, cut advertising spending and slowed store openings as it develops a new strategy for the business, an internal document showed in March.
CEO Jean-Bernard Levy last year spent 7.95 billion euros to take full control of SFR from Vodafone.
As the stock trades near the lowest levels of Levy’s seven-year tenure, the company has come under pressure from shareholders to offer a new strategy. Vivendi, which also owns the world’s biggest video-game and music companies, is considering an overhaul of its structure that may lead to a breakup, people with knowledge of the matter said two weeks ago.
The first quarter showed “exceptionally high” movement in the French mobile market, local telecommunications regulator Arcep said yesterday in a report. The number of mobile subscriptions transferred from one carrier to another reached 2.6 million, a record high, in the quarter when Free started selling its packages. France had 69.5 million mobile clients as of March, Arcep said.
“The numbers show Free probably won more from competitors than we thought,” Stephane Beyazian, an analyst at Raymond James Euro Equities, wrote in a note. Beyazian estimates Free, Iliad’s brand, got about 2.5 million subscribers in the quarter.
SFR could have a net subscriber loss between 350,000 and 400,000, or as much as 2 percent of its client base, according to Conor O’Shea, an analyst at Kepler Capital Markets.
France Telecom SA, the country’s largest phone company, said last week it lost 615,000 wireless customers last quarter in its home market. Its direct market share in France fell to 38.4 percent, 1.5 points lower than the fourth quarter.
Analysts predict Vivendi’s first-quarter revenue will fall 3.8 percent to 6.91 billion euros, according to the average of eight estimates compiled by Bloomberg. Net income is expected to be 743.5 million euros, based on six estimates, compared with an adjusted figure of 950 million euros reported by Vivendi over the same period last year.
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