PARIS (Reuters) - Two of France’s biggest telecom groups plan cost-cutting measures that will lead to hundreds of job losses as they struggle with cut-price competition that has dramatically shaken up their home market.
SFR, a unit of conglomerate Vivendi (VIV.PA), on Tuesday told staff representatives the main points of a restructuring plan involving voluntary redundancies.
SFR plans to make 500 million euros ($629 million) of cost cuts in 2013 on top of the 450 million already targeted for 2012 as it grapples with low-cost competition, a union source told Reuters on Tuesday.
And Bouygues Telecom, part of conglomerate Bouygues (BOUY.PA), also presented a reorganisation plan to its works council, saying it plans to cut 556 jobs from a 10,000 total through voluntary redundancies in response to tougher competition.
The measures come after the arrival in January of low-cost player Free Mobile, touching off a price war that forced SFR, France Telecom FTE.PA and Bouygues Telecom to spend heavily in an attempt to retain customers.
Analysts say the fourth player will eventually turn France into one of the toughest markets in Europe, with operating margins in the mid-20s percent, down from the mid-to-high 30s before Free Mobile’s arrival.
The cost-cutting plan by SFR, which has lost 3 percent of its customer base since the arrival of Free Mobile, comes as its parent company considers an overhaul of its own structure, including a possible breakup, after the departure of its chief executive last week due to diverging views on Vivendi’s strategy.
An SFR spokesman said the details of the plan, aimed at restoring its competitiveness, will be presented in November, but declined to disclose the number of redundancies and the extent of the cost cuts envisaged in the restructuring.
“Today we presented SFR’s main strategic directions for the future of SFR,” the spokesman said. “The idea of this presentation is to explain that we need to transform to restore SFR’s competitiveness in the market.”
Deutsche Bank analyst Patrick Kirby said the 950 million euro savings were at the high end of expectations and “a large number to come out of a cost base which has already been quite tightly managed”.
The union source told Reuters SFR plans to widen the gap between its low-cost and value-added offers which will result in a smaller number of products from September.
“There will be huge differences in terms of customer relations and service,” the source said.
The restructuring comes at a time of management upheaval at both SFR and its parent company.
Coinciding with the departure of Vivendi CEO Jean-Bernard Levy, Vivendi’s human resources chief Stephane Roussel was appointed to head SFR last week, instead of Michel Combes, whom Levy had poached from Vodafone (VOD.L) to lead a turnaround.
Roussel, speaking on the sidelines of a press conference on Monday, said SFR continues to operate as usual despite the sudden management reshuffle.
“What happened in the last few days hasn’t had any impact on the business,” he told reporters.
Like peers France Telecom SFR.PA and Bouygues Telecom, SFR has seen sales and margins shrink as it tries to respond to the price war sparked by Iliad’s (ILD.PA) Free Mobile. As a result, it has predicted its core profit could drop between 12 and 15 percent in 2012.
Bouygues Telecom lost around 3.5 percent of its customer base in the first quarter and has embarked on a 300 million euro cost-cutting plan that will start to have an impact in 2013.
The group is facing a 10 percent sales decline this year, with earnings before interest, depreciation and amortisation (EBITDA) expected to contract by 250 million euros.
A Bouygues spokesman said this target remains unchanged.
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Editing by Christian Plumb and David Holmes