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Friday, 27 September, 2002, 15:25 GMT 16:25 UK
MobilCom ditches 3G and sacks staff
MobilCom's founder and former chief executive Gerhard Schmid
Gerhard Schmid remains unhappy with France Telecom
Fresh from being bailed out by the taxpayer, struggling German mobile operator MobilCom has unveiled a survival strategy which will see almost half its workforce lose their jobs.

The company announced on Friday morning that 1,850 of its 4,200 full-time employees will have to be laid off to save 130m euros ($127m; 82m) a year.

At the same time, its preparations for third-generation mobile phone services will be frozen.

MobilCom, which lost its sole source of funding earlier this month when minority shareholder France Telecom pulled the plug, said it hopes the plan will put it back in the black by the first half of 2003.

Bailout prospects

The plan was welcomed by investors, and MobilCom's shares rose as much as 22% in early trading. By 1455 GMT the company's shares were up 11%.

For the moment, the company's future is secure, thanks to a deal with MobilCom's 17-bank creditor syndicate.

With a 4.7bn euro ($4.6bn; 2.9bn) loan due for repayment on Monday 30 September, insolvency looked imminent.

But the banks have granted the company an extra interest-free month to get its house in order.

What happens after that depends on whether a deal to turn the debt into France Telecom shares can be finalised.

Up in arms

MobilCom's troubles stem from the fractured relationship between the company's founder, Gerhard Schmid, and 28.5% shareholder France Telecom.

The French phone giant is trying to get to grips with its own mammoth debt burden of about 70bn euros.

MobilCom serves roughly five million German customers, but is dwarfed by its rivals Vodafone and Deutsche Telekom.

Despite this, MobilCom was one of six groups who bought licences to operate 3G mobile-phone networks in Germany.

In the hope of trimming investment expenditure, France Telecom wanted MobilCom to ditch its investment in 3G - a step too far for Mr Schmid, who said the plan breached his company's agreements with France Telecom.

The messy public row - which also took in allegations of share sale irregularities involving Mr Schmid's wife - ended up with Mr Schmid's ejection from MobilCom.

He still, however, owns half the shares in the German company.


The row over MobilCom came at a crucial point in Germany's general election campaign.

Incumbent Social Democrat Chancellor Gerhard Schroeder won on Sunday by the narrowest of margins, but his failure to tackle unemployment - now just above 4 million - had been the main thorn in his side throughout the campaign.

The risk to thousands of jobs just before the poll pushed the government into announcing a 400m euro bailout.

The European Commission is not happy with the loan, although Mr Schroeder insists it is at normal commercial rates.

The BBC's Patrick Bartlett
"MobilCom has announced 1800 job losses"
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