The Taming Of France Telecom

Michel Bon soothed labor and has privatization on track

When Michel Bon took charge of France Telecom in 1995, privatization of the phone monopoly was the government's bete noire. Each time officials made a move, militant unions staged massive strikes, forcing the government into a humiliating retreat. Bon's predecessor quit after just five days, making Bon the third president in three months. Unions struck within weeks of his arrival. Their ominous message to the newcomer: "Don't even think about privatizing."

But Bon, recruited from retailing giant Carrefour, surprised everyone. Within nine months, the smooth-talking marketer had tamed the unions and put the world's fifth-largest telecom operator on track for a late-April initial public offering that will be a crucial milestone for the French government. On Jan. 1, France Telecom quietly became a legal corporation. "It was a poisoned dossier before Bon arrived," says Elie Cohen, a former board member. "He managed the negotiations adroitly."

Just as Deutsche Telekom's $13 billion IPO last October was the largest stock issue ever in Germany, France Telecom's will be the biggest in French history. A fifth of the company will be sold off for an estimated $5 billion to $8 billion. The offering marks a turning point as the first major sell-off in France's huge public sector. If it succeeds, it could lower resistance to restructuring other public-sector service companies, such as Air France and federal railway SNCF. It would also save face for the government after Paris botched an attempt to sell defense and electronics giant Thomson in November.

Although selling labor on change was a crucial first step, Bon's toughest challenge is still ahead. Time is running out to prepare France Telecom for the Jan. 1, 1998, deadline for open telecom competition in Europe. Bon must inject market savvy into France Telecom's 150,000 employees before powerful rivals launch competing services. For example, Compagnie Generale des Eaux and partner British Telecommunications PLC are investing more than $1 billion to grab 20% of France's international phone market in the next few years.

PROGRESS. So Bon is drumming a critical message into his employees: Competition will be good for France Telecom because it will spur market growth. What the company loses to the competition, he reasons, it can recapture as the pie grows larger. Hands-on management augments his powers of persuasion. Unlike his predecessors, the 53-year-old Bon mingles daily with employees in the field. He set up a phone hotline for employees concerned about the impact of privatization and competition that already has logged more than 200,000 calls. Occasionally, he mans the line himself.

Bon has also made clear progress in restructuring the $28 billion France Telecom. He has slashed rates, improved service, and launched several new mobile licenses in international markets. In March, France Telecom's rate for calling the U.S. during off-peak hours will drop to 44 cents per minute, vs. 41 cents a minute for AT&T's callback rate. Bon has also demolished the company's stifling hierarchy and overhauled its structure, setting up 450 profit centers focused on three markets: consumers, small business, and big corporate customers.

But in the months ahead, Bon must tackle the corporate culture--and at breakneck speed. The metamorphosis of civil servants into market-driven salespeople has only just begun. And as looming price wars threaten income, Bon will have to double his efforts to develop innovative new services with higher margins to replace lost revenues. Market researcher Dataquest Ltd. predicts that France Telecom will see its international phone revenues decline in 1997 and possibly 1998, and that domestic long-distance revenues will decline for several years.

SLOW RESPONSE? And although France Telecom is considered one of Europe's more nimble monopolies, it will begin its corporate life saddled with some $16 billion in debt and with 95% of its employees civil servants who cannot be fired. That will make it tough to respond to rapid evolution of the telecom and Internet markets and the appearance of new rivals. "France Telecom is good at planning," warns one French consultant. "But it doesn't have the habit of rapidly adapting to changes in the market."

While France Telecom built Europe's first fully digital network, it lagged in developing even the most obvious services, such as call forwarding and caller identification. Now, Bon has launched a flurry of new services, including voice mail. But France Telecom needs to do more, especially in developing Internet-based services.

No one knows that better than Bon, who has created joint research and development and sales teams. His goal is to shift 15,000 technical employees into commercial jobs. Already, 13,000 have changed hats. "The problem we have is getting the right person in the right place," he admits.

After 1998, Bon aims to set up rival carriers throughout Europe. Elsewhere, France Telecom already operates 10 mobile phone services in countries from China and India to Poland and Argentina. But market experts say that France Telecom's international strategy is a weak link. While Bon races to restructure at home, he is missing opportunities abroad as nimble competitors such as British Telecommunications snap them up. "In international, France Telecom has some catching up to do," says Helen Pickance, telecom analyst at Dataquest. No one was betting a year ago that Bon would get this far. But he still has half a marathon to run.

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