France Telecom is this week expected to walk away from future obligations at MobilCom, condemning the German mobile operator to bankruptcy. MobilCom shares yesterday lost more than half their value despite reassuring statements from the company and Gerhard Schmid, the operator’s biggest shareholder, who has been pushing for the French group to take over its German partner.

France Telecom is understood to plan to walk away from future funding of MobilCom, while taking responsibility for the operators EUR 6.6b debt. MobilCom yesterday said France Telecom had reached an agreement with the operator’s creditor banks and equipment suppliers to restructure its debt.

Insight

France Telecom is burdened by one of the largest debt mountains in the telecoms sector. If it was to continue supporting MobilCom through to the deployment of 3G services, as called for under the terms of its original agreement, it would face yet more cash calls to increase its massive debt load. There are wider issues within the France Telecom group at play here, but MobilCom itself remains a loss-making business with a weak position in its home market. France Telecom would be prudent to walk away and cut its losses.