France Telecom to Focus on Costs as Mobile Phone Bill Shrinks

France Telecom SA, the country’s biggest phone company, said it will focus on cutting costs this year after a price war in its home market triggered by Iliad SA entered its second year, forcing phone bills down.

Earnings before interest, taxes, depreciation and amortization fell 9 percent to 3.12 billion euros ($4.1 billion), the Paris-based company said today. Sales dropped 5.9 percent to 10.28 billion euros, compared with the 10.34 billion-euro average estimate by analysts compiled by Bloomberg.

The owner of the Orange mobile-phone brand is navigating price reductions by rivals and seeking to persuade its own customers to spend more with faster Internet connections. With net debt of 30.5 billion euros at the end of last year, France Telecom is facing increasing pressure from credit agencies, with Standard & Poor’s cutting its rating by one step this week because of greater-than-anticipated earnings decline.

“We’re really focused on cutting costs and you’re starting to see the impact in the first quarter,” Chief Financial Officer Gervais Pellissier said during a conference call. “It’s the first time in two years that we lower costs as much.’

Wireless tariffs in France have fallen faster since newcomer Iliad started offering monthly subscriptions starting at 2 euros last year. France Telecom’s first-quarter wireless revenue in the country fell 8.1 percent to 2.16 billion euros.

Price Decline

Average revenue per customer dropped 10.7 percent in the period. The decline may reach as much as 13 percent in 2013, Pellissier said.

While the wireless units of Vivendi SA and Bouygues SA have eliminated jobs, France Telecom, 27 percent owned by the government, has less room to shrink labor costs amid Socialist President Francois Hollande’s tough stance against firings.

France Telecom instead reached a three-year agreement at the end of last year with local works councils defining how it will manage employees nearing retirement.

Stabilizing labor costs in France is key to cutting total expenses at the company, Pellissier said. He confirmed operating cash flow -- Ebitda minus capital expenditures -- will be more than 7 billion euros this year. Operating cash flow was 1.98 billion euros in the first quarter.

France Telecom, which makes more than half of its earnings at home, has sought growth abroad in markets such as Africa.

Revenue outside France, Spain and Poland fell 9.3 percent in the first quarter to 1.9 billion euros.

France Telecom rose 1.6 percent to 7.92 euros at 9:20 a.m. in Paris, valuing the company at 21 billion euros. The stock had fallen 21 percent in 12 months through yesterday, while France’s CAC 40 benchmark index gained 22 percent.

‘‘It’s still tough with investors, but there’s a change of perception on France Telecom and on telecommunications more generally,” Pellissier said. Chief Executive Officer “Stephane Richard and I just spent a week in the U.S. We were in London before. We feel from investors that they’re more interested.”

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