UPDATE 2-Orange shares fall as French mobile price war intensifies

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PARIS, July 26 (Reuters) - Orange shares fell on Tuesday after second-quarter results from France’s leading telecoms operator highlighted pressure on profitability stemming from a price war in the company’s home mobile market.

Shares were down 4.1 percent by 1241 GMT, making them the biggest decliners in the CAC 40 index of leading French stocks.

Shares of rivals SFR Group and Bouygues Telecom’s parent company fell 3.5 and 2.8 percent respectively, following the publication of Orange’s results.

Orange said revenue in France fell by 1.7 percent to 4.69 billion euros ($5.2 billion) in the quarter, even as it added customers for both fixed and mobile services. Group revenue was stable at 10.07 billion euros.

“The fall of Orange’s stock stems from the deterioration of the situation in France, because of the aggressive promotions of its competitors,” a Paris-based analyst told Reuters.

The telecoms operator’s results shows the difficulty it faces in strengthening margins in its core market, about four years after the arrival of Iliad’s low-cost Free Mobile services.

The group’s attempted merger with Bouygues Telecom could have alleviated the pressure on prices by cutting the number of operators from four to three, but the failure of that plan has postponed this prospect.

“Since the end of the consolidation (talks), some wondered whether prices would go in one way or another,” Chief Financial Officer Ramon Fernandez said on a conference call, referring to the French mobile market.

“Well, we witnessed the very aggressive commercial approach of our competitors in the second quarter.”

The fall in Orange shares accelerated after comments by Vivendi Chief Executive Officer Arnaud de Puyfontaine about Telecom Italia, in which the media group holds a 24.7 percent stake.

De Puyfontaine said he had an open mind regarding the possibility of a merger between Telecom Italia and Italian broadcaster Mediaset, a prospect that would quash the chances of Orange getting closer to Italy’s former monopoly.

“I have no preconceived idea about a potential Mediaset-Telecom Italia merger,” de Puyfontaine said.

With a market capitalisation of 12.9 billion euros, Telecom Italia ranks last among Europe’s six biggest telecoms operators, fueling regular speculation that the phone company could be a potential takeover target in a consolidating industry.

Orange has no current project for the Italian market and is holding no talks with Telecom Italia, Chief Executive Officer Stephane Richard reiterated on Tuesday.

$1 = 0.9079 euros Additional reporting from Agnieszka Flak; Editing by David Holmes and Mark Potter