UPDATE 2-France Telecom looks at costs as price war persists
* Q4 revenue falls 3.2 pct, restated EBITDA falls 8.8 pct
* Confirms 2013 operating cash flow target, dividends
* CFO says FTel, DTel to decide on EE IPO after H1 results
* Shares up as much as 3.5 pct from near 11-yr lows
(Adds shares, analyst, EE comments)
PARIS, Feb 20 (Reuters) - France Telecom predicted no let up in the price war shaking its home market and promised to focus on costs to return to cash-flow growth next year.
"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."
Despite the tumult in its home market sparked by low-cost mobile challenger Iliad, Europe's fourth-largest telecom operator by revenue posted largely in-line fourth-quarter results and confirmed its 2013 cash-generation and dividend targets.
The stock, which had fallen on Monday to its lowest since 2002 - when the group was on the verge of bankruptcy after a dot-com deal spree and needed a state bailout to recover - rose as much as 3.5 percent in early trade and was up 0.8 percent by 0859 GMT.
Espirito Santo analyst Nick Brown said investors were relieved that financial targets for this year had not been scaled back given the pressure in France, which accounts for half of group revenue.
France Telecom's average revenue per mobile customer fell 10 percent 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 percent of the market through the end of the third quarter.
In response, France Telecom, Vivendi's SFR and Bouygues Telecom have lowered prices, pushed all-included bundles of mobile, fixed, broadband and TV services to keep customers loyal and have began cutting costs.
Pellissier said the French business was counting on "quadruple-play" bundles to boost loyalty, as well as investing heavily in fourth-generation mobile networks and fibre broadband to offer better speeds and service.
"About 30 percent of our fixed customer base and 20 percent of the mobile base are on quad-play plans," Pellissier added.
On the cost side, France Telecom, which is 27 percent-owned by the state, is counting on staff retiring rather than redundancies to slim the size of its workforce. Its competitor SFR plans to lay off 856 workers and Bouygues 556.
Revenue in the fourth quarter fell 3.2 percent to 10.92 billion euros ($14.6 billion) on a comparable basis, hit by France and weakness at its Poland unit, the company said on Wednesday.
Restated earnings before interest, tax, depreciation and amortisation (EBITDA) fell 8.8 percent to 3.13 billion euros for a margin of 28.7 percent, versus 30.4 percent a year ago.
Net profit for full-year 2012 fell sharply to 820 million euros from 3.89 billion, hit by a 1.84 billion euro writedown on its Poland, Egypt and Romania units.
France Telecom also posted 7.97 billion euros in operating cash flow in 2012, compared with its 8 billion target. It maintained a goal of hitting operating cash flow above 7 billion this year.
The group confirmed its dividend of 0.80 cents for 2012 and 2013, and its target to get its net debt-to-EBITDA ratio close to two by the end of 2014. The leverage ratio stood at 2.17 at the end of 2012, helped by a significant dividend cut.
Given its debt levels, France Telecom said it would pursue a selective acquisition policy focused on consolidation in markets where it is already present.
Pellissier also said France Telecom and Deutsche Telekom would decide whether to pursue a float of their EE joint venture after the UK mobile operator's first-half results.
"Whether to go ahead with a listing ... later this year or early next will depend on the conditions on stock markets, as well as EE's performance," he said. "We would list 15 to 20 percent of the shares, so the owners would largely keep control over the business."
EE has also attracted the interest of private equity funds, who have been talking to banks in recent weeks to see if it is possible to finance a bid for Britain's largest mobile operator. ($1 = 0.7487 euros)
(Editing by James Regan and David Holmes)