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UPDATE 2-Mobile phone price war hits Bouygues profits
* 2012 net profit down 41 pct at 633 mln eur
* 2012 sales up 3 pct at 33.5 bln eur
* Sees flat sales in 2013
* Says 2012 should mark profitability low point
* CEO says no talks over telecom tie-ups (Adds details, CEO and trader comments)
By Elena Berton
PARIS, Feb 27 (Reuters) - Bouygues reported a 41 percent drop in full-year profits on Wednesday as cut-throat competition hit the French conglomerate's telecom business, which is cutting costs to try to deliver a turnaround this year.
Telecoms is the third-biggest revenue driver for Bouygues after construction and roadworks, but the business is battling a price war in the French mobile market.
Bouygues Telecom and its rivals France Telecom and Vivendi's SFR have all had to cut prices following the arrival of low-cost competitor Iliad's Free Mobile service a year ago.
Free Mobile has taken around 7 percent of the mobile telecom market in France with its low-cost mobile offers.
Bouygues forecast stable group revenues this year and also said margins should improve with the help of savings of 300 million euros ($392 million) at its mobile business on top of 151 million last year.
"In these conditions, 2012 should mark the low point in Bouygues' group profitability," the company said.
Shares in Bouygues, which have lost 13 percent in the last 12 months, were the strongest performers on the French CAC 40 index at 1444 GMT, up more than 12 percent.
In the fourth quarter, Bouygues Telecom said it was able to stem the loss of customers to cheaper rivals by adding 285,000 new mobile contract customers as well as 453,000 new customers for its low-cost service B&YOU.
"Certain investors want to believe in a turnaround in the situation this year," one Paris-based trader said. "The group said 2012 would mark the low point of its profitability, and the figures aren't as bad as one might have feared, even if telecoms continues to weigh on the results," the trader said.
Bouygues full-year net profit dropped to 633 million euros, down 437 million on 2011. Bouygues Telecom accounted for 345 million euros of the drop.
The company forecast that core profit at its telecom business would stabilise this year, although sales are expected to fall 7 percent.
Rival telecoms group Vivendi said on Tuesday that the postpaid mobile customer base at its SFR mobile business was stable at the end of last year compared with 2011.
But France Telecom said last week that it had seen no let-up in the price war and that the pressure on prices would be worse in 2013 than it had previously thought.
The fierce price competition has prompted media speculation about potential consolidation in the French telecom sector.
But Vivendi has insisted SFR is not for sale. Bouygues Chief Executive Martin Bouygues told reporters his group was not discussing any potential tie-ups with competitors.
Bouygues is aiming to for flat sales overall in 2013, with the expected decline at Bouygues Telecom offset by improving business at its residential construction unit.
Sales rose 3 percent last year to 33.5 billion euros, compared with a Thomson Reuters I/B/E/S analyst poll average of 33.3 billion.
The construction unit reported that sales rose 9 percent in 2012 after it secured large infrastructure contracts in Hong Kong and Thailand.
Its order book at the end of December was 12 percent higher than a year earlier at 17.1 billion euros.
Bouygues is paying an unchanged dividend of 1.6 euros a share for last year. ($1 = 0.7649 euros) (Additional reporting by Catherine Monin and Alexandre Boksenbaum-Granier; Editing by James Regan and Jane Merriman)
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