The telecommunications unit of French conglomerate Bouygues SA (EN.FR) said Thursday it won't pass on a tax hike that started on Jan. 1 to its customers.

Mobile phone customers will see their monthly fees unchanged, while customers of ADSL Internet connection will see a EUR1.88 increase on their monthly bill, the company said in a statement.

Fees for customers with a broadband optic-fiber connection won't be increased.

The government raised value added tax, or VAT, in 2011 to 19.6% from 5.5% on combined Internet, TV and phone packages, scrapping a reduced rate applied to the TV portion of triple-play bundles.

Competition is heating up in France as millions of customers will be free to switch operators from Feb. 1 as French law specifies that long-term commitments with telecom provider ends when there is a price change.

Bouygues' rivals have announced price hikes. France Telecom (FTE.FR) earlier this month said it will increase prices as of February 2011. SFR, the French telecommunications operator owned by Vivendi SA (VIV.FR), and cable operator Numericable also announced price increases, though SFR said this week it will offer unlimited fixed-to-mobile calls.

-By Inti Landauro, Dow Jones Newswires; +33 1 4017 1740; inti.landauro@dowjones.com