Beleagured MobilCom Gets 400 Million Euro Lifeline

In a deal agreed on late Sunday night, Chancellor Schröder’s Social Democratic government decided upon a bail-out of 400 million euro ($395 million) for the embattled mobile phone operator, MobilCom, to help it stave off insolvency.

Werner Müller, the federal economics minister said that the move, just one week before Germany holds general elections, would avoid an insolvency filing and gain time for MobilCom to restructure its business. It is also expected to protect the jobs of MobilCom’s 5,500 employees.

The rescue package will be pieced together by a banking consortium led by Landesbank Schleswig-Holstein, the public sector financial institution in MobilCom’s headquarters in the northern German state, and will be supported by the Kreditanstalt für Wiederaufbau, the federal credit agency.

After news of the bail-out was announced, shares in MobilCom rose almost four-fold. They were up 2.94 euro at 4.02 euro in early trading in Frankfurt on Monday.

Rights issue still unclear

The rescue followed emergency talks between Müller, Bernd Rohwer, the Schleswig-Holstein economics minister, and Thorsten Grenz, MobilCom’s chief executive.

"The liquidity problem is fundamentally not due to the company, but in our opinion is due to the behaviour of France Telecom, which is in breach of the contract that France Telecom has with MobilCom", Müller told a press conference.

The wrangling over MobilCom has been highly publicised because of the presence of France Telecom, the French state-controlled telecoms group.

The MobilCom crisis was triggered last week after France Telecom decided to withdraw from the German mobile phone operator. The French group, which announced last week that it has debts of a whopping 70 billion euro, has a 28.5 percent holding in MobilCom.

The rights issue still remains unclear. The chairman of France Telecom, Jean-Francois Pontal told the French "Le Figaro" newspaper that the group is not reckoning with complaints or lawsuits. "From a legal point of view, we are in a very solid position", he said.

Oppostion up in arms against rescue deal

Within Germany, Chancellor Schröder’s last-minute bail-out for MobilCom faced sharp criticism from the conservative opposition.

The Christian Democrats and Christian Union, which are trailing the Social Democrats for the first time just a week before elections, are worried that Schröder’s move to help the faltering telecom group and rescue jobs might sway voters in a country that is already struggling with unemployment levels of over 4 million.

The conservative parties’ economics expert of the parliamentary fraction, Matthias Wissmann has warned Chancellor Schröder that such a bail-out is not without risks, referring to the debacle of the construction group Holzmann at the beginning of Schröder’s tenure.

At that time Schröder had pulled off a spectacular rescue plan for the floundering construction giant only to have it file for insolvency two years later.

On Monday the political debate over the proposed rescue package intensified as Edmund Stoiber, the opposition candidate said Chancellor Schröder was responsible for the financial crisis at MobilCom because of the high cost charged for UMTS or third-generation mobile phone licenses.

"One must make clear that the reason lies with the government in that it made the six largest phone companies pay practically 50 billion euro from their pockets", Stoiber told ZDF morning television. "MobilCom paid 8.5 billion euro for these licenses alone. It was a big mistake of the government".