France Telecom grapples with costs

PARIS (Reuters) - France Telecom (FTE.PA) expects further consolidation in some European markets and more co-operation among operators to cope with rising costs of investing in networks and spectrum, an executive told Reuters.

Anne Bouverot, head of mobile services for France Telecom, said operators must find ways to be profitable even as they spend heavily to build out faster mobile networks and fiber broadband to keep up with the rising tide of data from smartphones and tablets.

Speaking at the Reuters Global Technology Summit in Paris on Tuesday, Bouverot said France's plan to auction off fourth generation wireless spectrum for at least 2.5 billion euros, which was announced on Monday, showed the dilemma facing operators.

"We've seen the amounts that the government hopes to get from the auctions," she said. "These are very significant amounts that operators are being asked to spend particularly at a time when we are also expected to invest not only in mobile capacity but also in fiber."

To keep up with these rising burdens, Bouverot said France Telecom, which markets its offers under the Orange brand, has adopted several strategies.

It has deepened its co-operation with Deutsche Telekom (DTEGn.DE) to bring down costs via a joint venture on purchasing, network sharing in Poland and Austria, and other technology co-operation.

The project could save about 1.3 billion euros annually after three years -- a little under 900 million euros for France Telecom and around 400 million for Deutsche Telekom.

On the commercial side, Orange is pitching new value-added services like mobile payments, security for smartphones and technical support to customers to keep them loyal and squeeze out incremental revenues.

"In our Western European markets mobile penetration is above 100 percent, so we need to find ways to grow by focusing on the customers that are already with us," she said.

Orange is also betting that tablet computers will prove a profitable niche as more consumers adopt them.

Bouverot said the company would soon launch bundled data offers for tablets and smartphones in a bid to remove one of the obstacles holding back the mass-market adoption of devices like Apple's (AAPL.O) iPad and Samsung's (005930.KS) Galaxy Tab.

"The tablet market is still in its nascent stages, so there may be other ways to develop it," she said. "We are trying things and testing as we go."

Orange has also launched a more stripped-down, cheaper tablet manufactured by Chinese device maker Huawei in markets like Spain, Poland, Romania, and Slovakia.

France Telecom, which is Europe's fourth largest telecom operator, has seen its shares largely underperform the sector index in the past year in a reflection of investors' worries about increasing competition in its domestic market and the difficulties of cutting its cost base.

Its shares were largely flat in Tuesday trading, closing at 15.53 euros per share.

($1=.7044 Euro)

(Editing by James Regan and Jane Merriman)