Politicians clash over MobilCom

MobilCom got a temporary bailout from the German government to avoid insolvency

BERLIN, Germany -- Politicians waded into the debate over troubled MobilCom on Monday, with the German chancellor promising financial and morale support for the troubled telecom operator, while his opponent accused the government of mismanagement.

Gerhard Schroeder, facing a tough battle for re-election next Sunday, said he had held talks with the French government, which has a majority stake in MobilCom's partner France Telecom, in a renewed effort to save the group from bankruptcy.

"The [German] government will support MobilCom in talks with the French government," Schroeder told a news conference in Berlin on Monday.

Schroeder's government said on Sunday it would provide 400 million euros ($391 million) in loans to keep German-based MobilCom afloat following a decision by France Telecom late on Thursday to cut off funding to the debt-laden group.

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France Telecom paid 3.7 billion euros in 2000 for a 28.5 percent stake in MobilCom in an effort to break into the German telecom market, the largest in Europe. Their agreement called upon France Telecom to provide funding for MobilCom's purchase of third-generation mobile phone licences and network construction.

However, after the telecom bubble burst, MobilCom was left with a debt of 6 billion euros due to a delay in 3G mobile phone development and a slump in the market.

But Edmund Stoiber, Schroeder's conservative opponent in the election, said on Monday the German government was partly responsible for MobilCom's financial woes because of the hefty price tag it put on 3G licences.

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"One must make clear that the reason lies with the government in that it made the six largest phone companies pay practically 50 million euros from their pockets,'' Stoiber said an interview on ZDF television.

"MobilCom paid 8.5 billion for these licences alone,'' he said. "It was a big mistake of the government.''

MobilCom (AMOB) share which have lost most of their value this year, were up 202 percent to 3.31 euros in mid-morning trading on Monday. France Telecom (PFTE) was flat at 10.38 euros.

The German government's decision to bailout MobilCom should give the group -- which had said it would file for insolvency this week if no action was taken -- some breathing space to resolve its differences with France Telecom.

"This is an important step for the continued existence of our company,'' MobilCom Chief Executive Thorsten Grenz said on Sunday. "We are now looking for a mutually acceptable agreement with France Telecom.''

German Economics Minister Werner Mueller told reporters in Berlin on Monday that France Telecom had a responsibility to honour its funding agreement with MobilCom, whose 5,500 employees could soon find themselves without jobs.

"MobilCom is a healthy company which is experiencing a liquidity squeeze that was not the company's fault, but occurred because of France Telecom's withdrawal (of funding),'' he said.

The possible demise of MobilCom would be a political blow to Schroeder, who came to office on a pledge -- since abandoned -- to cut unemployment to 3.5 million during his term. Unemployment is now running above 4 million.

It also follows the failure of other high-profile German companies this year -- including construction giant Philipp Holzmann and media group Kirch.

Meanwhile, the French government announced on Saturday that it would give France Telecom a "very substantial" investment to help with the group's financing problems.

France Telecom, which has amassed debt of 69.7 billion euros, posted a 12.2 billion euro first-half loss on Friday -- one day after the resignation of its chief executive Michel Bon.