Government Wants to Rescue MobilCom

With the federal elections just one week away and Chancellor Gerhard Schröder's re-election hopes already burdened by a stagnant economy, Germany's government is riding to the rescue of bankrupt telecoms giant MobilCom.

Economics Minister Werner Müller met with MobilCom CEO Thorsten Grenz, company founder Gerhard Schmid and the economics minister of the state of Schleswig-Holstein, where MobilCom has its headquarters on Sunday. The four were looking for a way to save the company and its 5,000 jobs after it was dropped by parent company France Telecom last week.

MobilCom founder Schmid said France Telecom violated a 2000 co-operation agreement forcing the French firm to fund its German partner for up to 10 billion euro, and was planning a lawsuit. MobilCom said it was considering a similar suit.

During a short break Sunday evening, Müller told reporters that both sides agreed MobilCom had legal rights in the dispute with Telecom, but had yet to come to produce a solution.

The company has temporarily delayed a decision to file for bankruptcy. "Maybe tonight, maybe tomorrow during the day - that's still an open question," a company spokesman told reporters.

Bloated France Telecom in trouble

After months of infighting between MobilCom and its parent company France Telecom, the cash-strapped French firm finally dropped MobilCom last week.

Telecom is one of the most debt-laden companies in the world, owing some 70 billion euro. On Friday, it reported first-half losses of 12.2 billion euro, prompting CEO Michel Bon to resign.

Like other failing telecoms companies, France Telecom made many acquisitions during the boom time, including a 28.5 percent share of MobilCom in 2000. MobilCom shelled out 8.4 billion euro in 2001 for a government license allowing it to build towers for the so-called next generations of mobile phones.

But the next-generation mobile market has been floundering and MobilCom's share price has been plummeting, prompting Telecom to pull the plug.

Now the German government is demanding the French government, Telcom's majority shareholder, take a more active role in saving the struggling telecoms giant. For its part, sources told the Financial Times, the German government is prepared to offer MobilCom up to 100 million euro in credit guarantees.