MobilCom in 'critical' condition

MobilCom debt mounted as customer growth stalled after tech bubble burst

FRANKFURT, Germany -- Telecom group MobilCom said on Thursday its financial situation had deteriorated amid an ongoing battle with partner France Telecom and a slumping mobile phone market.

"The company is in a critical situation,'' Chief Executive Thorsten Grenz said in a statement. "We are taking up this challenge with all our power.''

MobilCom said its net loss jumped to 172.8 million euros ($169.7 million) in the second quarter from 27.9 million a year ago, adding that it might have to write down some of the costs of its third-generation mobile licence in Germany in the next quarter.

Revenues fell more than 20 percent in the second quarter to 520 million euros due to a slowdown in subscriber growth, the group said. MobilCom sells mobile services to 4.9 million customers using the networks of other telecom operators.

MobilCom founder Gerhard Schmid stepped down as chief executive earlier this year

MobilCom purchased it mobile phone licence for 8.4 billion euros in 2000 with the help of France Telecom, which has a 28.5 percent stake in the German group.

However, relations between to companies soured after the technology bubble burst and demand for 3G services declined.

The partnership has also been strained by a fight over strategy between France Telecom and MobilCom's founder and former chief executive Gerhard Schmid -- who along with his wife owns just under 50 percent of the group.

France Telecom, which has piled up an estimated debt of 75 billion euros after an acquisition spree, is under pressure to rescue MobilCom from possible insolvency by buying out the Schmids and taking on the group's 6.4 billion euro debt.

Earlier this month, France Telecom signed a memorandum of understanding with MobilCom creditors to roll over 4.7 billion euros of the debt.

"The losses in our core business are not acceptable and cannot be justified by growth anymore,'' said Grenz, who succeeded Schmid earlier this year. "The restructuring we have started will lead to significant charges, which will strain our third quarter.''

MobilCom shares were up 0.2 percent to 6.51 euros in midday Frankfurt trading, while France Telecom (PFTE) fell 5.1 percent to 13.66 euros in Paris.