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Business

Grim End to Mobile Dispute

France Telecom pulls the plug on German telecommunications company Mobilcom, terminating a debt-burdened relationship. Mobilcom is now threatened by bankruptcy.

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France Telecom says MobilCom chief Gerhard Schmid has breached the agreement between the two companies

France Telecom has ditched its troublesome German partner Mobilcom.

After months of argument over whether France Telecom, itself under heavy debt, should carry Mobilcom’s liabilities as well, the French company has finally made a break.

With the termination of the cooperation framework agreement between the two companies, France Telecom no longer feels committed to finance German Mobilcom, Telecom’s chief finance officer, Jean-Louis Vinciguerra said on Tuesday.

"We don’t want to see Mobilcom get into repayment difficulties. But if an acceptable solution is not found rapidly, it’s clear that MobilCom could come close to bankruptcy".

Shares in Mobilcom dropped 4 percent as trading began in Frankfurt on Wednesday, after a sharp fall of 46 percent before being suspended on Tuesday.

Dubious transactions

France Telecom announced it would sell its 28.5 percent stake in Mobilcom, saying it had been forced to act after Mobilcom had breached the cooperation agreement.

Telecom accuses Mobilcom of refusing to give Telecom a say in company decisions and by violating German company law due to a dubious transaction involving company funds and the head of Mobilcom’s wife.

But the question of how banks and France Telecom divide up Mobilcom's debt betwen them has been the thorniest of issues between the two companies.

France Telecom, itself under a 60.7 billion euro debt load, has suffered persistent speculation it will be forced into a rights isue if it added Mobilcom's debts to its balance sheet.

"No legal basis"

Mobilcom has said France Telecom’s unilateral withdrawal has no legal basis and is considering retaliation. The German company may take Telecom to court.

And France Telecom’s withdrawal leaves the question of debt up in the air.

Mobilcom has to refinance a 4.7 billion euro loan, which matures in July.

Telecom said it was prepared to give limited financial support to Mobilcom to prevent it going bankrupt, but stressed that with the termination of the agreement there were no more obligations.