German Government OKs Mobilcom Aid

The German government announced a $388-million bailout package for cell phone operator Mobilcom, which had said it was heading for bankruptcy after shareholder France Telecom cut off funding last week.

The move Sunday by Chancellor Gerhard Schroeder’s government as well as the state of Schleswig-Holstein saves some 5,500 jobs, at least temporarily, a week before Sept. 22 national elections.

The package, announced by Economy Minister Werner Mueller, includes $311 million in loans from the Kreditanstalt fuer Wiederaufbau, a government-controlled bank. Some $48.5 million is to be made available to the firm immediately, and the rest in the coming year. Mobilcom had said it needed at least $194 million to continue operations for half a year and to restructure.

Mobilcom was among six companies that paid $8.2 million apiece in 2000 for licenses to offer so-called third-generation, or 3G, phone services in Germany. Such services have enough capacity to offer high-speed Internet access and other data capabilities.

But the new service remains unproved and has yet to generate revenue, and companies face the extra burden of building expensive networks in Germany and elsewhere just as they struggle with sluggish European economies.

The costs of building the 3G network were at the heart of the clash between France Telecom, which is 55% owned by the French government, and Mobilcom’s founder and former chief executive, Gerhard Schmid.

Schmid wanted France Telecom to pay more and build faster, while France Telecom wanted to find another partner to share costs.

France Telecom, struggling to cope with large debts of its own, currently owns 28.5% of Mobilcom and is reluctant to put up more cash. The French firm’s chairman, Michel Bon, resigned ahead of record losses posted Friday.

Schmid, who owns a 40% stake, has tried without success to force France Telecom to buy him out and take full control of Mobilcom.