France Telecom boss Michel Bon quit as head of the debt-ridden firm as it unveiled losses of 12.2bn euros (�7.7bn; $12bn).

Mr Bonn's resignation was accepted by the French government, France Telecom's largest shareholder, at a crisis meeting on Thursday evening, a statement said.

Thierry Breton: Tipped as successor

The four-hour meeting heard that France Telecom, which has a 75bn euro debt mountain, operated at a net loss of 12.2bn euros for the first half of the year.

"The large size of these losses led me to offer my resignation," said Mr Bon, who has been president since 1995.

The French Government, which owns 55.5% of the firm, said it would offer the firm capital support to prevent it falling into financial distress.

Mobilcom withdrawal

Thursday's meeting also backed plans to halt further funding to German mobile phone venture Mobilcom.

"I suggested to the board of directors of France Telecom, which agreed, to put an end to our financial support to Mobilcom as well as our ambitions in mobile [phones] in Germany," Mr Bon said.

The decision raises doubts over the future of Mobilcom, which is itself suffering a cash squeeze, and has said it would be forced to file for bankruptcy if France Telecom withdrew support.

Union chiefs said 5,000 jobs were under threat, and German Chancellor Gerhard Schroeder, facing elections on 22 September, is reported to be lobbying Paris to ensure the unit does not collapse.

France Telecom's first half loss included provisions of 11.1bn euro, mainly relating to Mobilcom.

France Telecom's underlying earnings rose by 13.2% to 6.9bn euros.

Successor plans

Mr Bon has been being blamed for France Telecom's disastrous recent underperformance, including a record loss in 2001.

European telecoms bosses - the casualty list

British Telecom: Sir Peter Bonfield, quit January 2002 KPN: Paul Smits, demoted November 2001 Sonera: Kaj-Erik Relander, quit June 2001 Deutsche Telekom: Ron Sommer, quit July 2002

The firm's shares have tumbled by 75% this year alone.

But it had earlier seemed that he had nonetheless secured the support of French Finance Minister Francis Mer, and with it backing from the government.

The Finance Ministry said that a replacement head would be appointed at a board meeting scheduled for a date within "the next few weeks".

Observers have seen Thierry Breton, chief executive of electronics firm Thomson Multimedia as a likely successor for the president's role.

Money worries

A key element in France Telecom's future strategy will be securing a new form of financing.

Previously, most discussion has revolved around state support, and rumours swirled earlier in the year that the company would be renationalised.

The change of government, from the previous socialists to a new free-market coalition, has made that option unlikely, and Mr Mer has been viewed as wary of providing money directly to the company.

Instead, there is now talk of an issue of new shares, possibly as much as 15bn-euros-worth - a deal that would more than double France Telecom's market capitalisation.

If, as seems likely, the stock market proves unwelcoming to such a large offer, bonds could also be used to raise money, reports said.