European Commission approves aid for MobilCom to restructure, but with strings attached

July 14, 2004

2 Min Read

BRUSSELS, Belgium -- The Commission today approved aid granted to MobilCom AG to help with its restructuring in 2002. But the aid approval comes with tight strings attached. To offset the distortions of competition caused by the aid, MobilCom and its affiliates must halt their online direct sales of MobilCom mobile telephony contracts for seven months.

The Commission held that competition was unfairly distorted primarily because MobilCom used the aid not only to restructure the company physically but also to reorient its marketing strategy and to focus on more profitable customer segments in its core business area as a mobile telephony/service provider. The aid thus had a particularly damaging effect on competitors as they too are having to target their business strategies at more profitable customer groups because the German mobile telephony market has reached saturation level.

On top of that, in the years leading up to the crisis MobilCom had been focusing on the UMTS sector, using aggressive pricing to pursue an expansion strategy aimed solely at boosting its market share. In the end this strategy failed, forcing MobilCom to withdraw from the UMTS sector. However, the aid granted meant that MobilCom did not have to bear alone the negative consequences of the risky strategy it had pursued, while at the same time being able to benefit from the positive effects, such as the fact that, in slimming down its customer portfolio, it could count on a larger customer base. This meant that the aid gave MobilCom a substantial advantage over its competitors.

The Commission takes the view that imposing a ban on direct online sales of MobilCom mobile telephony contracts for seven months should offset the competitive distortions created. For the company, direct online marketing represents an increasingly important channel for selling mobile telephony contracts. Halting such marketing for a while will offer competitors a chance that customers will go to their websites and sign up for contracts.

The investigation has shown that the measures imposed will not place an excessive burden on the company. Action to implement the measures must begin within two months of the decision.

In its decision the Commission held that the state guarantee granted to the German mobile telephony undertaking MobilCom for a EUR 112 million loan amounted to restructuring aid. It concluded that the award of the aid led to an unfair distortion of competition on the mobile telephony market. Consequently, it was able to approve the aid only subject to certain conditions.

MobilCom AG

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