France Telecom has launched a low-cost mobile brand aimed at young web-savvy users in a bid to blunt the upcoming entry of a new mobile competitor.

France Telecom's new brand, dubbed Sosh, will tweak the normal mobile model to reduce costs; the operator will not subsidise the phones, and all the customer service and sales will be done online. Customers will also not be locked into one or two-year contracts.

France Telecom expects to recruit 500,000 users to Sosh by the end of 2012 with a marketing focus on the 18-35 year old set. There are three Sosh offers priced from 19.90-39.90 euros ($28-$56).

The move is a departure for France Telecom, whose strategy as France's biggest operator has long been to charge a premium for its mobile and fixed packages and argue that it is justified by the quality of its network and customer service.

The Sosh launch comes amid intensifying competitive pressure in Europe's third-largest telecom market, which has eroded profits for all operators, even before Iliad enters the fray as the country's fourth mobile operator.

France Telecom and its rivals Vivendi's SFR and Bouygues Telecom are locked in price wars as they try to sign up as many customers as possible to 12 and 24-month contracts before Iliad arrives.

Industry executives and retailers have estimated that prices on mobile contracts have dropped 15-20 percent since the beginning of the year, and will probably continue to decline.

Delphine Ernotte, who heads the company's French business, said that despite the lower prices, the Sosh offers had similar margins to other smartphone offers.

"We've done a lot of work to squeeze costs out of the way we offer mobile services," she explained, giving as an example the online customer service system.

"The profitability of Sosh offers will be on par with other offers once you take into account the marginal cost of launching the new brand."

France Telecom's new brand follows Bouygues Telecom's launch in July of a low-cost brand dubbed B&You.

It also mimics what Iliad, which markets its offers under the brand Free, is widely expected to do at its mobile launch, notably by not offering phone subsidies and prioritising online sales.

France Telecom shares were up 1.2 per cent at 12.11 euros at 1008 GMT, while the Stoxx Europe Telecom index was up 1.5 per cent. – Reuters