(Adds further details, background)
By Leila Abboud and Gwénaëlle Barzic
PARIS, June 12 The French government still wants to reduce the number of mobile telecom operators in the national market to three from four to bring an end to the "destructive spiral" of falling prices, Economy Minister Arnaud Montebourg said on Thursday.
"Our position is to work towards a return to three operators," Montebourg told a telecoms conference organised by Les Echos newspaper.
A price war sparked by low-cost telecoms challenger Iliad's arrival in the mobile market in January, 2012, has resulted in open talk of consolidation in recent months, with Bouygues Telecom the centre of attention after losing a bidding war in April for its bigger mobile rival SFR to cable group Numericable.
Since then third-placed Bouygues has been in talks for a sale to either market leader Orange or Iliad but Bouygues Telecom's chief executive Olivier Roussat said discussions had not been successful and it now had plans to cut 17 percent of the carrier's staff to reduce costs to secure its stand-alone survival.
Two people close to the situation earlier said the talks between Bouygues and Iliad and Orange had stumbled over price, but they did not rule out the possibility that these could resume. Bouygues wanted a price of 8 billion euros ($10.89 billion), or nine times its 2013 operating profit, as a starting point for talks.
Montebourg called on the companies to come back to the negotiating table.
"I am calling on all players to find other solutions than job cuts," Montebourg said.
"There are other solutions on the table and we must make them work together," he said, referring to the deal options.
Shares in parent conglomerate Bouygues were up 4.25 percent at 33.38 euros by 1110 GMT, while Iliad was up 6.4 percent at 235.2 euros and Orange was up 0.5 percent at 12.27 euros. Numericable was up 1.9 percent at 44.78 euros.
Many investors hope that consolidation will lead to improvements in Europe's third-largest telecom market, which has seen mobile prices drop by 27 percent last year, on top of an 11 percent drop in 2012.
It remains to be seen whether the companies will be able to agree some sort of merger.
And Orange's deputy chief executive Pierre Louette said on Thursday the company would also have to consider any conditions likely to be imposed by the competition regulators.
"Today there have been no discussions that have led to agreeing on a term sheet or deal structure," Louette told the industry conference in Paris.
"Orange would do nothing that would not rebuild value and create margin for us relatively quickly," he said. (Writing by Andrew Callus; Editing by Greg Mahlich)