Europe's largest telecoms and entertainment group, Vivendi, slashed its dividend as it wrestles with tougher competition in the French mobile market that is set to eat into margins at its SFR telecom business.
SFR, Vivendi's biggest unit, has been locked in a mobile price war since mid-January when Iliad's Free Mobile shook up the market with ultra low-cost offers.
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Vivendi said it plans to pay investors 1 euro per share on 2011 earnings, down from 1.40 euros a year ago, with shareholders also receiving one share for every 30 owned.
Core profit margins at SFR will probably decline by 12-15 percent, Chief Executive Jean-Bernard Levy said in an interview published on the website of French daily Les Echos on Thursday.
Analysts predict Vivendi, its domestic rivals France Telecom and Bouygues Telecom will all become structurally less profitable as Iliad takes market share in the coming years, draining cash flows and eroding margins for the larger players.
SFR has responded with price cuts for a swathe of mobile offers and aggressive customer retention efforts.
"We had planned to pursue price reductions," Levy told Les Echos, saying that the company had to react quickly to protect its customer base. He added that SFR had lost 1 percent of its clients, although sales were "very good".
Rivals have also had to respond to the new threat.
Bouygues Telecom is cutting costs to help offset an expected 10 percent sales slide this year due in part to the increase in competition.
France Telecom said last month it had already lost 201,000 mobile customers and has also taken a knife to its dividend as well as put off a share buyback promised for this year using proceeds from the sale of its Swiss unit. Instead it has pledged to conserve cash in the face of tougher mobile competition and the euro zone debt crisis.
Last year, Vivendi achieved a 9.4 percent rise in adjusted net income, it told Les Echos, boosted by its GVT Brazilian telecom and Activision Blizzard video game units.
Earnings, which were also boosted as the group took full ownership of SFR after buying out partner Vodafone's minority stake for about 8 billion euros, reached a record 2.95 billion euros ($3.95 billion), it said.
Vivendi had cut its profit forecast in November to more than 2.85 billion euros, against 3 billion previously, after the French government hiked corporate tax rates to help cut the national budget deficit.
Revenue inched 0.5 percent higher last year to 28.8 billion euros, Vivendi told Les Echos.
Activision Blizzard said on Wednesday it was cutting 600 jobs globally out of 7,300 in the unit that makes Internet games including the company's most profitable property, "World of Warcraft", which has lost users in recent quarters. ($1 = 0.7476 euros) (Editing by Phil Berlowitz and Edwina Gibbs)