June 11, 2014 / 2:35 PM / in 3 years

UPDATE 2-Bouygues Telecom to cut jobs after sale talks fail

5 Min Read

* 1,516 jobs to be trimmed out of 9,000

* CEO says sale talks with Orange, Iliad fell through

* New commercial push in fixed broadband (Adds sources, price disagreement, shares)

By Leila Abboud and Gwénaëlle Barzic

PARIS, June 11 (Reuters) - France's third biggest mobile operator Bouygues Telecom plans to cut 1,516 jobs or 17 percent of its staff to reduce costs to ensure its survival in a market where prices are down by nearly one-third.

Olivier Roussat, who heads the telecoms arm of the family-controlled conglomerate, also acknowledged on Wednesday that the company had held talks with potential buyers - low-cost player Iliad and market leader Orange - but these were no longer ongoing.

"Obviously the talks did not succeed otherwise we would not present this plan to remain independent," Roussat said. He declined to give reasons for the failure of the negotiations.

"We are cutting costs to survive in a four-player market."

Bouygues Telecom has been the centre of deal speculation since April, when it lost a bidding war for number two carrier Vivendi's SFR to cable operator Numericable.

Two people close to the situation said the talks between Bouygues and potential buyers had stumbled over price but they did not rule out the possibility that these could resume at a later date. Bouygues wanted a price of 8 billion euros ($10.89 billion), or 9 times 2013 operating profit, as a starting point for talks with both Iliad and Orange, the people said.

One of the people said that such a price would not create value once regulators imposed remedies to protect competition. Iliad's initial informal offer was between 4 and 5 billion euros, while Orange's could not be determined.

Bouygues shares closed 6.3 percent lower as consolidation hopes deflated. They have risen almost 17 percent this year boosted by a recovery in the construction and roads business and investor hopes for potential asset sales.

Orange closed down 3.3 percent and Iliad 6.8 percent.

Price War

Iliad's arrival on the mobile scene in January 2012 sparked the price war that is now increasing the pressure to consolidate. Mobile prices fell 27 percent last year and 11 percent in 2012, according to the telecoms regulator.

Bouygues has been hardest hit because of its smaller size. Its mobile market share declined by three percentage points and its operating margin fell to 15 percent in the first quarter from 22 percent in the same period in 2011.

Bouygues in March took the price battle to the fixed broadband market with a TV, Internet and fixed-line phone bundle at 19.99 euros a month, a move that analysts said was targeted at Iliad, which has similar offers from 29.99 euros a month.

Bouygues' new commercial strategy will focus even more on the fixed market, an area where it has long trailed rivals. It plans to invest in its network to offer broadband directly to 16 million homes from 12 million currently instead of renting lines from Orange. It will also invest more in faster fibre broadband lines. Bouygues said capital expenditure on its network would remain stable at around 500 million euros a year.

Alongside this, the job cut plan aims to save 300 million euros a year by end of 2015.

Back-office jobs like marketing and information technology will be targeted, while the roughly 4,500 people employed in customer service and stores will remain untouched.

Bouygues cut 542 people via a voluntary scheme in 2012, but this time there may be some compulsory cuts.

Consolidation

The mobile market's difficulties since Iliad's arrival has led executives from the major telecom companies to call for consolidation.

France's main competition regulator Bruno Lassere no longer opposes this, and Industry Minister Arnaud Montebourg has openly called for it to calm what he has called "destructive competition".

Speaking at a press briefing on Wednesday, Lassere said he had held discussions with all the operators in the past few months as they considered various tie-ups. "I cannot give them a formal opinion, but can provide my views and map out the potential risks," Lassere said.

Having four operators is certainly better for consumers than three, he said, but more important than the number is preserving an aggressive "maverick" who forces price cuts.

"The telecoms market is at a turning point ... If consolidation is inevitable, then we should prepare for it and negotiate it effectively. The worst outcome would be that one of the actors simply disappears because it can no longer survive."

$1 = 0.7345 Euros Reporting by Leila Abboud and Gwenaelle Barzic; Editing by Andrew Callus and Jane Merriman

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