* 2013 operating cash flow seen down 12.5 pct to 7 bln euros
* France hit by price war after launch of new mobile player
* Dividend cut to 0.80 euro per share for 2012, 2013
* Predicts return to growth in 2014
* CFO says group to submit 'indicative offer' on Yoigo
PARIS, Oct 25 (Reuters) - France Telecom has slashed its dividend for this year and next, it said on Thursday, as it tackles tougher than expected competition in its key home market from a new low-cost mobile rival and a weaker economic outlook.
Predicting a 1 billion-euro ($1.3 billion) slump in operating cash flow next year, the owner of the Orange mobile brand said it would pay a dividend of at least 0.80 euros a share in 2012 and 2013, down from the 1.21-1.35 euros originally promised for 2012 in February, and the 1.4 euros paid last year.
The cut comes as Europe's telecom operators struggle to find growth amidst intense regulatory pressures, falling prices, and changes in how consumers use their phones. Telefonica scrapped its dividend this year and halved it for 2013, while KPN and Telekom Austria also reduced theirs.
France Telecom's situation is tougher than its European peers because mobile upstart Iliad has touched off a price war in France, FT's biggest single market, to take 5.4 percent of the market in its first six months. Its shares are down 23 percent this year, compared to a 6.5 percent decline for the European telecom sector index
Established operators like Vivendi's SFR and Bouygues Telecom are cutting jobs and launching new products to try to counter Iliad's Free Mobile.
Chief Financial Official Gervais Pellissier said the French market, which accounts for about half group revenue, would remain in painful transition through next year.
``By then 85 percent of our customers will be on contracts at the new lower price points,'' he said on a call. ``But we are confident that we can manage the period of change to get back to growth in 2014.''
Europe's fourth-biggest telecom operator predicted it would increase its operating cash flow in 2014 from a forecast 12.5 percent fall to 7 billion euros in 2013, helped by a steadier French market, cost cuts, the easing of regulatory pressure on international roaming prices.
``Prices have fallen so low in France that we may even be able to begin increasing tariffs if we can prove that our services bring value to customers,'' he said.
Amid the tumult, France Telecom posted in-line third quarter results and managed to add 317,000 net new mobile customers.
Revenue fell 3.5 percent to 10.76 billion euros, while earnings before interest, tax, depreciation and amortisation (EBITDA) fell 7.3 percent to 3.65 billion euros.
Analysts had expected third-quarter revenue of 10.74 billion euros and EBITDA of 3.62 billion, according to a poll of 12 analysts.
Pellissier said the cash flow pressure meant France Telecom would have to be prudent on acquisitions to ensure it kept its net debt to EBITDA multiple close to two and protect its credit rating.
But he added that the group was looking at Spain's smallest mobile operator Yoigo, which is being sold by Nordic owner Teliasonera. France Telecom's Orange brand is Spain's third-biggest operator where it competes with leader Telefonica and Vodafone.
``Yoigo would be a small acquisition ... so it is probable that we will submit an indicative offer,'' he said.