France's Orange cuts costs as mobile price war abates

* Holds operating margin steady despite sales drop

* Q1 sales fell 3.8 pct to 9.8 bln, in line with forecast

* Q1 EBITDA fell 3.8 pct to 3.02 bln, in line with forecast

* CFO sees fewer acquisition targets, no rush on Spain

* Open to talks with Bouygues (Other OTC: BOUYF - news) on network sharing, wholesale (Adds details, CFO comments, shares)

By Leila Abboud and Gwénaëlle Barzic

PARIS, April 29 (Reuters) - France's biggest telecom operator Orange (Other OTC: FNCTF - news) has continued cutting costs on everything from staff to mobile phone marketing, allowing it to hold profit margins steady despite lower sales across its major markets.

The group on Tuesday posted first-quarter sales and operating profit that met expectations and confirmed its goal for 12-12.5 million euros ($16.6-17.3 million) in earnings before interest, tax, depreciation and amortisation (EBITDA) this year.

Group EBITDA fell 3.8 percent to 3.02 billion euros in the quarter, yielding a steady operating margin of 30.8 percent.

Nevertheless, finance chief Gervais Pellissier said the worst of the mobile price war that has raged in France since low-cost player Iliad (Paris: FR0004035913 - news) launched a mobile service in January 2012 was in the past.

"We are maybe not totally out of the tunnel but we do see positive trends," he said, adding that French telecom operators were switching from across-the-board price cuts to more traditional sales and promotions.

Orange shares are up 20 percent this year to 10.84 euros at Monday's close - the third-biggest rise in the European telecom index - as investors bet on the company's recovery. The telecom index is down 2 percent in the same period.

With pressure strongest in Orange's key markets of France and Poland, first-quarter sales fell 3.8 percent to 9.8 billion euros on a comparable basis, excluding a 333 million euro charge to settle outstanding litigation with rival Bouygues (Frankfurt: BYG.F - news) and other one-off items.

To cope, Orange continued cutting costs, achieving 267 million euros in savings, with 76 million euros coming from staff costs and 70 million from lower mobile call termination fees - a trend that is set to benefit the European telecom sector this year.

One bright spot was Spain where Orange has been adding mobile customers as it competes with leader Telefonica (Madrid: TEF.MC - news) and second-place Vodafone, which recently bought cable operator Ono to expand into fixed telephone and broadband services.

To figure out a response, Orange hired Bank of America (TLO: BAC.TI - news) Merrill Lynch to advice it on its strategy in Spain, including the possible acquisition of smaller competitor Jazztel (Other OTC: JAZTF - news) , people familiar with the matter said in March.

But Pellissier said "there was no urgency to move" after the Vodafone-Ono deal because Orange could negotiate wholesale agreements or partnerships to build high-speed broadband with Telefonica or Vodafone.

"We see fewer acquisition opportunities compared to March, but we will remain attentive to consolidation in European countries where we are already present in mobile and not in fixed," he said.

In a radio interview, Orange Chief Executive Stephane Richard listed Romania, Belgium, and to "a lesser extent Spain" as places where the company could buy fixed assets to complement its mobile operations.

Pellissier added that Orange was open to discussing wholesale agreements in broadband or network sharing with French rival Bouygues, which today has a network sharing deal with Vivendi (TLO: VIV.TI - news) 's SFR.

"We are the biggest wholesale provider in France and we're open to all forms of cooperation that allows us to grow our sales," said Pellissier. "If Bouygues knocks on our door, we are open to talking with them."

($1 = 0.7223 Euros) (Reporting by Leila Abboud and Gwenaelle Barzic; Editing by Mark Potter)