x UPDATE 3-France Telecom looks to cuts for price war respite
* Q4 revenue falls 3.2 pct, restated EBITDA falls 8.8 pct
* 2012 net profit shrinks 80 pct on Poland impairment charge
* Confirms 2013 operating cash flow target, dividends
* CFO says FTel, DTel to decide on EE IPO after H1 results
* Shares down 1.7 percent, near 11-year low
(Adds 2013 ARPU, cost cut details)
PARIS, Feb 20 (Reuters) - France Telecom predicted no let-up in a price war squeezing its home market and said it would focus on costs to return to cash-flow growth next year.
"The pressure on prices will be worse in 2013 than we thought," chief financial officer Gervais Pellissier said on Wednesday.
"But we still aim for a slight improvement to operating free cash flow next year (2014), and since prices may not stabilise in France, we will work more on our cost structure to get there."
Despite the turmoil 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 group's net profit for 2012 fell 79 percent to 820 million euros, hit by a 1.84 billion euro writedown on operations in Poland, Egypt, and Romania.
Poland is proving a particularly tough slog - former monopoly TPSA has seen mobile profit fall sharply and has promised cost cuts, but investors pummelled the shares after a recent dividend cut.
France Telecom's stock fell on Monday to levels not seen since 2002 - when the group was on the verge of bankruptcy after a dot-com deal spree and needed a state bailout to recover. The stock was down 1.7 percent to 7.59 euros at 1314 GMT.
In France, average revenue per mobile user (ARPU) 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 company said ARPU in French mobile would declined "at least 10 percent" further this year.
Free Mobile, 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-inclusive 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.
The group also said it would reduce operating costs by 500 million euros this year after a 284 million effort last year.
Jerry Dellis, analyst at Jeffries, welcomed the group's "more credible outline on cost cutting," which detailed trimming via retirements and attrition, as well as lower call centre, marketing and outsourcing costs.
"Previously FT guided to 800 million net operating cost reduction in France in over three years to 2014; they now expect this to be achieved in two years," he wrote in a note.
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.
France Telecom also posted 7.97 billion euros in operating cash flow in 2012, compared with its 8 billion target. It kept a goal of 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 debt levels, France Telecom will pursue a selective acquisition policy in markets where it was already present.
Pellissier also said France Telecom and Deutsche Telekom would decide whether to pursue a float of their EE joint venture after the British 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, which 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 euro)
(Editing by David Cowell)