France Telecom SA will this week reveal its plan to reduce its debt burden in a move that will have big implications for carriers across Europe. The company will be shored up short-term by a 9bn euro ($8.9bn) cash injection from the French government. This will be done via an arms-length organization designed to create the fiction that this is not a blatant case of the state bailing out a failed company.
New chairman Thierry Breton, who got the job on the strength of his record in turning round Thomson Multimedia, faces more formidable problems this time. While France Telecom may be able to use its political clout to persuade the European Union not to block a state subsidy, it faces greater problem in persuading the EU to accept a delay in the 3G roll-out.
This is essential for France Telecom’s future as its Orange SA mobile arm has been responsible for creating much of its 70bn euro ($69.3bn) debt pile. Spending billions more on a technology yet to prove itself would be ludicrous in the current climate.
While government may not be sympathetic, carriers would welcome a breathing space before they have to invest in 3G and have been lobbying the EU to try and get it to force governments to accept a more relaxed timescale.
The biggest problem facing Breton comes from his own workforce. Not only is the 140,000 on its payroll excessive, but also about 108,000 have civil service status which protects their jobs. Unions have suggested that 45,000 jobs would go – based on the number of staff approaching 55 years of age who could take early requirement.
If France Telecom is to develop sufficient cash from its operations to cut debt then the workforce must be cut substantially. Again Breton may have to turn to the French government for the resources to make job cuts palatable.