Can Breton Fix France Telecom?
Breton, 47, certainly has his work cut out for him. Although observers rave that he worked wonders with consumer electronics group Thomson, as well as computer group Bull, sharply reducing costs and increasing revenue, they question whether his magic will work at the helm of one of the most debt-ridden companies in the world.
"Since Breton’s experience with Thomson Multimedia occurred during a boom market, it remains to be seen whether he will be able to cure what ails FT,” writes Peter Cohan, an analyst with Peter S. Cohan & Associates, in an email to Light Reading.
But the work Breton did before joining Thomson in 1997 may more accurately describe what he’ll be facing at FT. Before becoming a turnaround artist, Breton authored eight science fiction books. He also worked as a math teacher.
Other analysts applaud the move. “A person with the skill-set to actually fix a company is probably the most difficult to find,” says Frank Dzubeck, president of Communications Network Architects.
Breton will officially resign from Thomson next Tuesday.
Breton’s appointment was no surprise. Breton was tagged as one of the favorites for the position almost as soon as his predecessor, Michel Bon, was forced out on September 12. Bon stepped down after his government-backed international expansion strategy, which included the acquisition of mobile operator Orange Communications SA and other wireless assets, dramatically increased the company’s debt and led to the posting of astronomical losses. The company reported €12.2 billion (about $11.9 billion) in losses for the first half of 2002 (see Bon Voyage to Another CEO).
France Telecom certainly seems to think that Breton will do a better job than his predecessor. He will receive the same salary he had while working at Thomson, €1.57 million, which is about five times more than Bon made while working for the company.
Breton is also reportedly very chummy with both French Prime Minister Jean-Pierre Raffarin and President Jacques Chirac. This is important, since the French government still owns 56.4 percent of the company that until five years ago was a state monopoly.
While the government is limited by EU regulations from stepping in to save its drowning carrier, there are many indications that it is trying to step up its involvement in the running of the company. Bruno Janet, an FT spokesperson today admitted that Breton had been handpicked by the French government, and also conceded that the government was appointing more board members than usual. “It is the government that chose a manager who had proved his worth,” he said.
Having good government relations could certainly make Breton’s job a little easier. While the biggest challenge facing him now is finding the €15 billion the company needs to pay the portion of its debt that comes due in 2003, he is also going to have to tiptoe very carefully around politically explosive issues.
“He has to be very attuned to the government,” Dzubeck says. “He’s a good Mr. Inside to fix things, and a good Mr. Outside to placate the politicians.”
Raffarin, a center-right politician, for instance, needs Breton to succeed if he wants to convince the French public that selling stakes in other state-owned companies is a good idea.
That’s not likely to happen anytime soon. Between 60,000 and 80,000 demonstrators marched on Paris today protesting the government’s privatization program. While the French public may realize that FT is struggling, observers say they still consider the carrier public property, and would balk at any cost-reductions that include massive job-cuts. In addition, about four fifths of the company’s employees in France have civil servant status, which makes them nearly impossible to fire.
While Breton hasn’t announced any of his plans for ameliorating the carrier’s devastating financial situation, and has said that no such plans will probably be released for another two months, industry analysts say that he will have no choice but to cut jobs. The fact that FT’s German counterpart, Deutsche Telekom AG (NYSE: DT), announced yesterday that it would soon slash nearly 30,000 jobs, also points in that direction (see DT's Layoffs: The First of Many?).
This poses substantial problems in France, where obligatory severance pay in the short term often outweighs the long-term operational savings. Frank Dzubeck points out that if FT were to cut the same number of jobs as the number of layoffs Deutsche Telekom announced yesterday, the company could expect to have to shell out something like $15 billion in severance payments.
In addition to layoffs, Breton’s plan is expected to include massive sales of assets. “The question is,” Dzubeck says, “do you pull everything back to France? Do you get rid of Orange? He has no choice but to sell off assets.”
“If Breton is to make progress, he will most likely have to sell FT’s crown jewels to pay down its enormous debt load to make it through its current liquidity crisis,” Cohan writes.
“In the coming weeks I will conduct an in-depth study of the company’s activities,” Breton said in a statement yesterday (see Thierry Takes Helm at France Telecom). “This review will enable us to rapidly define and implement solutions to loosen the financial grip in which France Telecom is now caught and recover the necessary flexibility to pursue a great ambition.”
— Eugénie Larson, Reporter, Light Reading