Political scandal within the French government has forced France Telecom SA (NYSE: FTE) to name a new chairman and CEO after Thierry Breton was poached by the country's President Jacques Chirac to be his new finance minister (see France Telecom Names New CEO).

Breton, who had been France Telecom chairman and CEO for little more than two years, was appointed to the senior government post late last Friday after a financial scandal involving luxury housing expenses forced incumbent Herve Gaymard to quit his job after only three months in the role. Ooh la la!

The new chairman and CEO at France Telecom is Didier Lombard, previously vice president with responsibility for technology and strategic partnerships.

He takes the reins as the national operator, still 42 percent owned by the French government, faces unprecedented pressure from aggressive broadband competitors such as Groupe Cegetel, Neuf Telecom, and Iliad (Euronext: ILD). (See Neuf: Time Is Right for IPTV, Iliad Ramps Up Broadband to the Homer, and French Say Oui to DSL TV.)

He does, though, inherit a profitable national operator praised by Standard & Poor’s for its "strong operating performance and conservative financial policy," and which has reintegrated its mobile, broadband and, international services offshoots (see S&P Raises France Telecom Rating, France Telecom Reports 2004 Results, and Eurobites: It's a Numbers Game).

The carrier's share price dipped by 24 cents, about 1 percent, to €22.98 in morning trading on the Paris exchange, but French financial analysts see Lombard as a natural successor to Breton, and don't believe the change will unsettle the carrier's strategy.

Breton had been CEO since October 2002, when he inherited an ailing carrier from Michel Bon (see Can Breton Fix France Telecom? and France Telecom Posts Huge Loss). He cut the operator's debt from a staggering €70 billion ($93 billion) to a still considerable but less daunting €44 billion ($58 billion) by selling assets, rationalizing operations, and cutting jobs (see Eurobites: Strange Goings On, France Telecom Cuts 7% of Staff, France Telecom Sells Casema, France Telecom Sells Broadcast Division, and FT Sells Vodafone-Panafon Stake).

And under his leadership, France Telecom began preparing for the future by reorganizing the carrier's business structure and instigating a number of key technology partnerships (see France Telecom Teams With Thomson, France Telecom, Deutsche Telekom Sign MOU, China & France Telecoms Get Chummy, and Another French Revolution?).

But it was Lombard, one of Breton's closest allies, who was personally responsible for creating the partnerships and developing new services, such as TV over DSL. Insiders at the carrier saw Lombard as the natural, and only realistic, internal successor to Breton.

Breton had been tipped to become France's finance minister last November when Gaymard was appointed (see Eurobites: Thanksgiving Special). French media reports said at the time that Breton wasn't prepared to take the accompanying drop in salary – from more than €1.4 million ($1.9 million) in 2004 (including bonuses) to an annual salary of about €170,000 ($225,000) -- that such a move would bring.

Now, it seems, political pressure from Chirac has forced Breton's hand, and left him even more out of pocket: He is not eligible for any part of his agreed €2.3 million ($3 million) severance package because he has resigned voluntarily, a France Telecom spokeswoman confirms.

— Ray Le Maistre, International News Editor, Light Reading