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MobilCom Losses Spiral

Troubled German operator Mobilcom AG today partly blamed its spiraling first-quarter net loss and delays in launching GPRS services on its bitter public feud with minority shareholder France Telecom SA.

Earlier this year, France Telecom told Mobilcom to slash its spending on third-generation (3G) infrastructure. Mobilcom refused, claiming that France Telecom had no right to dictate its spending, and it threatened to prove this by publishing the text of contracts with the French operator. The market is now waiting to see when and how this situation will be resolved.

Poor old France Telecom, which bought a 28.5 percent stake in Mobilcom in 2000 in an attempt to break into the German market, must be wondering exactly who's zooming whom, as analysts question Mobilcom's ability to ever crack the three-way chokehold Deutsche Telekom AG, Vodafone Group PLC, and KPN Mobile have on the German mobile market. Some even wonder if it could survive without France Telecom to hold its hand.

"To the extent the Mobilcom situation continues, we believe Mobilcom's ability to build a credible 3G operation in Germany and take market share off some strong incumbents remains in doubt," says Mark James, an equity analyst at Nomura Bank in London, in a research note.

Louis Landeman, a high-yield analyst at Bear Stearns & Co. Inc. in London, believes that there is "a lot of uncertainty" around the future of Mobilcom. In Landeman's view, the company "would face bankruptcy if not supported by France Telecom."

Gerhard Schmidt, the CEO of Mobilcom, told analysts during a conference call this morning that he does not expect a final agreement with France Telecom on the funding and ownership of Mobilcom until mid-June. This runs counter to a statement made by France Telecom at the end of April that it expected a resolution in "the coming weeks."

Landeman suspects that the new mid-June date for a final agreement with France Telecom may be due to plans by the French incumbent, which is still majority state-owned, to run a rights issue. The second round of the parliamentary elections in France is due to take place on June 16.

France Telecom's investment in Mobilcom has developed into a minefield for the French operator, which wants its partner to slash its spending on third-generation infrastructure (see Fear Grips European Operators). Potentially, France Telecom could be forced to take over all of the German reseller, consolidating as much as €7 billion to €8 billion (about US$6.3B to $7.2B) in debt on an already creaking balance sheet.

France Telecom had agreed to buy out Gerhard Schmidt and his wife (who, between them, own around 40 percent of the stock) at the end of March this year, but there have since been rumors that the ensuing majority holding by France Telecom would trigger a forced bid for the entire company.

Meanwhile, Mobilcom is trying to prove that it is a force to be reckoned with in the domestic wireless market. The company said that sales commissions from DT's T-Mobile (its D1 arm), D2 Vodafone, and E-Plus (the mobile operator owned by KPN), has fallen from 40 percent of total revenues in the first quarter of last year to just 15 percent (of a considerably smaller revenue base) in the first quarter 2002.

Mobilcom inferred from that that the three market leaders were putting the burn on because it is now perceived as a "serious competitor." However, around 80 percent of the German mobile market is carved up -- more or less equally -- between D1 and D2, which does not suggest that Mobilcom is making serious inroads into their profit margins.

Mobilcom's group revenue in the first quarter of 2001 was €728.7 million ($657.6M) on a mobile subscriber base of 4.6 million, and a reported overall customer base of 7.3 million. It has now fallen to €514.3 million ($464.1M) for the same period in 2002, on a mobile subscriber base of 4.9 million and an overall base of 9 million -- figures that do not bode well for the company's business model. Mobilcom did not publish a breakout of its mobile average revenue per user (ARPU). However, it did lay claim to 13 percent of the contract customer market in Germany.

The net loss at Mobilcom in the first quarter of 2002 was €116 million ($104.6M), nearly three times the net loss of €43.5 million ($39.3M) seen in Q1 2001. The company's EBITDA loss was €120.7 million ($108.9M), nearly four times the €34.8 million ($31.4M) loss seen in the same quarter last year.

— Ouida Taaffe, special to Unstrung
http://www.unstrung.com
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