Bouygues, the French construction, telecoms and media conglomerate, reported a 29 per cent decline in net profit for the first six months of the year as it paid a heavy price for a domestic price war in its mobile phone business.
The launch of Free Mobile by Iliad, a company controlled by French billionaire Xavier Niel, has hurt the country’s big three incumbent telecoms providers: France Telecom; Vivendi’s SFR; and Bouygues Telecom.
As a result, Bouygues said on Tuesday night that it had proposed a voluntary redundancy programme to cut staff numbers at the telecoms business by 556 employees.
It said the division was “facing deep-seated changes on the mobile market, significantly denting its financial performance”.
First-half sales across the group increased by 2 per cent to €15.5bn but net profit fell to €343m from €484m in the same period last year.
Telecoms has traditionally provided about half of the company’s net profits. But the division now expects underlying earnings before interest, taxation, depreciation and amortisation will fall to €900m this year, down from €1.27bn in 2011.
Restructuring costs are expected to make the decline even sharper when including one-off charges.
Bouygues said it had launched a €300m cost-cutting plan to reduce marketing and operating expenses in the telecoms business.
Free Mobile’s arrival has been controversial because French telecoms regulators let it piggy-back on France Telecom’s network, allowing it to cut mobile call charges to as little as zero for some existing customers of its fixed-line service.
The recently elected Socialist government has promised that future telecoms policy will be decided as much by the need to protect jobs as by the desire to cut prices for consumers.
Vivendi is also expected to announce a far-reaching restructuring of its SFR telecoms business when it reports full-year financial results on Thursday.