The German government has put together an EUR 400 million rescue package for the ailing UMTS licensee MobilCom. Last week the future of the German mobile virtual network operator looked bleak as its main investor, France Telecom, opted to withdraw its backing. With elections looming at the end of this week the German chancellor Gerhard Schroeder is keen to prevent a major corporate failure from dominating the national headlines.

As a result, over the weekend the government orchestrated an EUR 320 million loan from the state bank Kreditanstalt fuer Wiederaufbau and a further EUR 80 million from MobilCom’s own state bank Schleswig-Holsteinische Landesbank. With its debts effectively reduced MobilCom is now expected to re-enter negotiations with France Telecom in an effort to get it to continue funding the German company’s operations.

Insight

PMN’s comments on the 13/09/02 Sky News article ‘MobilCom files for bankruptcy protection‘ warned of this as a possible outcome. Government bailouts have a poor track record in Germany and this will only serve to underline the inflexibile market conditions which are harming the country’s reputation in the financial community.

This move can only be motivated by political gain. The loss of 5,000 German jobs so close to the country’s elections would generate unacceptable negative publicity. If the market is allowed to operate freely MobilCom will collapse and the competitive landscape in the German telecommunications market will be improved for the remaining players.