France Telecom 5-yr plan in focus after suicides

PARIS, FRANCE: France Telecom's new chief executive, Stephane Richard, will lay out a five-year strategic plan on Monday, aiming to right the group after a spate of worker suicides and win back investor confidence.

Richard, who presented the plan to managers in Paris on Thursday, has so far declined to say how much the new plan will cost, although some details on new hires, network investment and acquisitions could be revealed at a press conference on Monday.

Labour union officials who have been briefed on the strategic plan said it focuses on seven priorities.

First among them is putting the "human element" back at the heart of the group's development to improve worker morale, which was rocked last year by a series of suicides that unions blamed on stress and poor management.

Richard's nomination at the helm of France Telecom was sped up in the aftermath of the suicide crisis as his predecessor Didier Lombard was eased out early after being accused of mishandling the politically combustible situation.

The plan also calls for simplifying the group's commercial offerings, improving the network quality and capacity to cope with increased data traffic, seeking growth in emerging markets, and developing new services.

However, labour union officials were withholding judgement on the plan until more is known about how much money the company will commit to it.

"We are still missing one important thing, beyond the good intentions and presentation of the plan: How much will the company invest in all this?" asked Christian Mathorel, who represents the CGT labour union.

Other union officials echoed the concern that Richard would have trouble really changing things at the group without scaling back his promises to shareholders, namely altering the firm's high dividend yield and ambitious cash flow targets.

Such parameters are closely tracked by financial analysts and are the main justifications for the investment case in the slow-growth, mature-market telecom group.

Since his arrival at France Telecom, Richard has stuck by these targets, especially to generate 8 billion euros of free cash flow per year in 2010 and 2011.

One union official said Richard told them, when he presented the plan to them earlier this week, that he did not want to spook markets by altering these financial targets.

Asked whether he would scale back the dividend, Richard was said to have responded: "I am not going to add a crisis on the financial markets to the social crisis we are already going through."

The French operator's shares have dropped about 18 percent since the beginning of the year, compared with a 7 percent drop for the telecom index .SXKP and a 12.5 percent drop for France's CAC 40 index .FCHI.

Its shares are trading at lows not seen since 2002.

France Telecom's underperformance to its telecom peers can partially be explained by fears that it has less room to cut costs to boost profits in periods of slow growth, given its touchy situation after the suicide crisis and expanding promises to workers.

"Since the company is focusing on its employees, it seems unlikely to us that labour costs will drop in 2010," wrote Goldman Sachs analysts in a note published on Thursday in which they downgraded France Telecom from buy to neutral.