SFR's second-quarter profitability hit by heavy promotions in mobile business

August 9, 2016 1:12 AM EDT

People walk under the logo of French telecoms operator SFR in Paris, France, August 8, 2016. REUTERS/Philippe Wojazer

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By Mathieu Rosemain

PARIS (Reuters) - France's SFR reported a steep decline of its second-quarter core operating profit, hit by heavy promotions and customer losses in its mobile business as competition remains fierce in the French telecoms market.

Core operating profit at France's second-biggest telecoms operator fell 6.8 percent from the previous year to 999 million euros ($1.11 billion), while revenue declined by 4.3 percent to 2.78 billion euros.

Still, SFR sees signs of improvements in the pricing environment of France's mobile market in the second half of the year and bets that its heavy investments in high-speed internet infrastructures in both broadband and mobile will help it lure customers willing to pay more for a better network.

"We are seeing right now a more normalized competitive environment although there's still promotional activity, mainly at the low-end of the market, while we are more focused on the high-end of the market" SFR Chief Executive Officer Michel Combes said in a call with reporters.

"We expect more normalized conditions to come in the next coming months and that's what we are working on right now," he added.

SFR's results show the difficulty the industry faces in strengthening margins in the French mobile market, about four years after the arrival of Iliad's low-cost Free Mobile services.

Orange's second-quarter results already signaled a continuation of the price war in the sector.

Combes declined to comment on the cost and potential savings of the redundancy plan SFR signed with its two leading unions last week to cut 5,000 jobs by mid-2019.

French newspaper Les Echos reported last week that SFR would provision 600 million euros to 800 millions euros over two years to finance the job cuts, with expected annual savings to amount to about 400 million euros as soon as 2017.

SFR's parent company, Altice, said in a separate statement that second-quarter core operating profit grew 2.7 percent to 2.27 billion euros, beating a Reuters poll of 2.14 billion euros, as its businesses in Portugal and the United States offset the steep decline in profitability at SFR.

It confirmed its full-year forecast.

(Reporting by Mathieu Rosemain; Editing by Alan Crosby)

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