PARIS: France Telecom predicted the price war shaking its home market sparked by aggressive low-cost mobile challenger Iliad would continue and promised to focus on costs to return to cash flow growth next year.

Revenue in the fourth quarter fell 3.2 per cent to 10.92 billion euros ($14.59 billion) on a comparable basis, hit by France and ongoing weakness at its Poland unit, the company said on Wednesday.

Restated earnings before interest, tax, depreciation and amortisation (EBITDA) fell 8.8 per cent to 3.13 billion euros for a margin of 28.7 per cent versus 30.4 per cent a year ago.

France Telecom’s average revenue per mobile customer fell 10 per cent to 336 euros last year, another sign of how much the market has changed since the arrival of Iliad’s Free Mobile low-cost, no contract offers.

The newcomer, which launched in January 2012, had taken 6.4 per cent of the market through the end of the third quarter.

To cope, France Telecom, Vivendi’s SFR and Bouygues Telecom lowered prices, pushed all-included bundles of mobile, fixed, broadband and TV services to keep customers loyal, and began cutting costs. “The pressure on prices will be worse in 2013 than we thought,” said Chief Financial Officer Gervais Pellissier.

“But we still aim for a slight improvement to operating free cash flow next year, and since prices may not stabilise in France, we will work more on our cost structure to get there.”

France Telecom, which is 27 per cent owned by the state, is counting on retirements to slowly pare the size of its workforce in the coming years. Its competitor SFR plans to lay off 856 workers, and Bouygues 556.

Europe’s fourth-largest telecom operator by revenue also posted 7.97 billion euros in operating cash flow in 2012, just short of its 8 billion target.