Who's Running This Company?

Boardroom putsches are nothing new at France's state-owned enterprises, especially when a new government settles in. But the recent changes at France Telecom border on buffoonery. The phone company has had two presidents in two weeks as warring factions within the government clash over the pace of change. Until the confusion ends, France will slip behind as other countries prepare their phone utilities for Europewide deregulation in 1998.

The action started in July when Post & Telecommunications Minister Franois Fillon sought to depose Telecom President Marcel Roulet, who was pushing for rapid privatization. Roulet held on until Aug. 30, when he resigned in favor of Franois Henrot, president of Compagnie Bancaire. Yet nine days later, Henrot quit in protest, after Fillon promised union leaders he would delay the company's partial privatization. To repair the damage, Prime Minister Alain Juppe quickly appointed yet another new president--Michel Bon, the former chief of successful retailer Carrefour. Bon says he will continue to push on with privatization.

Yet it's impossible to declare a victory for the forces of reform. The partial privatization of the phone giant, which Juppe insists will occur, could still be undone if the unions organize a crippling public-sector strike. They strongly oppose any sale, since private stockholders will probably seek an end to job guarantees and automatic pay raises. Indeed, the only likely way for a privatization to succeed is if the government guarantees the lifetime employment and cushy benefits enjoyed by almost all of France Telecom's current workers.

Some analysts say political indecision already has ruined France Telecom's opportunities to get the best possible price in a future share offering. Since legislation must be drafted and passed before an offering is possible, the earliest any shares could be sold now is 1997. By then, European markets will be flooded with $30 billion in offerings from Germany's Deutsche Telekom and others.

HAMSTRUNG. Meanwhile, telephone rates will already be dropping as rival companies begin to whittle away at France Telecom's lucrative dominance of the market. Says Andrew Entwistel, a consultant at British firm Analysys Ltd. in Cambridge: "France Telecom is going to go into 1998 with one hand tied behind its back."

The irony is that the company still has strengths, including good cash flow and technology, that could get it off to a strong start in 1998. "If they can't reform France Telecom, they can't reform anything," says Elie Cohen, an outside director of France Telecom and director of the National Center for Scientific Research. The uneasy feeling that the government lacks the stomach for any painful change is spreading, especially after Juppe's dismissal of Finance Minister Alain Madelin, a free-market proponent who critiqued the creaking social system one time too many. Madelin's departure must make Michel Bon wonder just how much he can really do.

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