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MobilCom blames France Telecom row for Q1 disaster

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ComputerWire: IT Industry Intelligence

German mobile operator MobilCom AG posted disastrous first-quarter results yesterday, and then blamed its performance on its row with France Telecom SA.

The tone of MobilCom's strangely blunt and at times almost wilfully negative press release would seem to indicate that peace hasn't broken out just yet. The Buedelsdorf, Germany-based company said its feud with the French incumbent had led to operational hitches including the scrapping of a GPRS service that cost it a new revenue stream, and the research and development previously invested in it. The total expense incurred by the cancellation was 90.3m euros ($81.4m).

It said the row with France Telecom had disconcerted customers and "had a negative effect on MobilCom's sales pitch." Its increase in subscribers of 7% to 4.9 million it described as "nominal", and drew attention to the fact that subscribers "fell below the 5 million mark for the first time since August 2001."

For the three months to the end of March, MobilCom recorded a net loss more than double analyst expectations at 116.4m euros ($105.4m), compared to a loss of 43.5m euros ($39.2m) a year ago. Revenue fell 29% to 514.3m euros ($463.9m).

The ongoing row is deeply embarrassing for France Telecom, which has lumbered itself with a faltering and openly hostile partner in what is arguably the most competitive market in Europe.

MobilCom's CEO Gerhard Schmid and France Telecom fell out when the French incumbent, which owns 28.3% of MobilCom, refused to foot its share of the bill for MobilCom's 3G roll-out.

Its refusal means it is obliged to buy out Schmid's shares in MobilCom, but though it would like to control MobilCom so it could be incorporated into its Orange mobile arm, it cannot do so because of the low stock market rating of Orange shares and its own debt problems. The consolidation of MobilCom would add 6bn euros ($5.4bn) of debt to its own debt of 60.7bn euros ($54.7bn).

The two parties did sign a peace deal under which Schmid sold his holding to a consortium of financial institutions, but regulators stepped in as the banks could be seen to be acting as a concert party in a back-to-back transaction with France Telecom at the expense of minority share holders.

On a conference call, Schmid said he was still prepared to sell his stake to France Telecom for 22 euros ($19.8) a share, and said that he expected to receive an offer by mid-June, which would have to be extended to minority shareholders.

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