MobilCom 'can't challenge rivals'

MobilCom debt mounted as customer growth stalled after tech bubble burst

FRANKFURT, Germany -- France Telecom's stock dropped sharply on Monday morning after a report cast doubts about its German affiliate MobilCom's ability to compete against its stronger rivals.

A report commissioned by Europe's second-largest phone company said MobilCom's customer base is eroding and customer satisfaction is very low, the Wall Street Journal said, citing people familiar with the matter.

Speculation has been growing that France Telecom (PFTE) might pull the plug on its struggling German mobile phone company. The board of France Telecom is expected to take a final decision on September 12, a day before the company publishes it earnings.

France Telecom slipped 4 percent to 12.26 euros in early Paris trading, while MobilCom slumped 10.5 percent to 5.82 euros in Frankfurt trading on Monday morning.

French daily Le Figaro reported over the weekend Chief Executive Michel Bon would like to abandon MobilCom but the government, which owns 55.5 percent of France Telecom, would like the French group to buy out the German company.

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MobilCom, which is Germany's fifth-largest mobile phone company, is heavily dependent on finance from its French partner.

After months of trading public insults with MobilCom's former chief executive Gerhard Schmid over the scope of the French group's financial obligations to roll out high-speed wireless services in Germany, the French camp is pouring over MobilCom's books to assess whether to bid for the 71.5 percent of MobilCom it does not already own.

Schmid was ousted by France Telecom in June over a dispute about an illegal stock option plan. But Schmid is suing France Telecom to buy his stake in the company. Schmid and is wife own about 50 percent of MobilCom.

Some industry experts are betting on a bid, funded by new Orange shares, that will allow the French camp to keep its German foothold, appease its own banks -- some of which are unhappily exposed to MobilCom -- and avoid lengthy litigation, Reuters said.

France Telecom, which is already labouring under around 70 billion euros of debts, has agreed a preliminary deal with MobilCom's 17 creditor banks to roll over 4.7 billion euros ($4.63 billion) of MobilCom's debts.

Schmid has invited France Telecom to buy him out at 22 euros a share -- four times the current share price.

If France Telecom buys MobilCom, it is expected to use the business as a platform to take on the twin might of Vodafone Group and Deutsche Telekom, who together control 80 percent of the German market.