MobilCom dispute deepens

February 21, 2002 Posted: 1655 GMT

LONDON (CNN) -- France Telecom on Thursday threatened to take its German partner MobilCom to court as a dispute over next generation phones intensified.

The Paris-based telecoms giant has also called for an inquiry into shares purchased by the wife of MobilCom's chief executive Gerhard Schmid.

The dispute, which has resulted in a plunge in MobilCom's stock value, centres on the investment levels for their agreement to build a third-generation wireless network.  

France Telecom, Europe's second biggest phone group, took a 28.5 percent stake in MobilCom two years ago in an effort to break into the huge German telecoms market.

It had planned to spend about 12 billion over the next few years building a network for new UMTS, or 3-G, mobile phone technology. UMTS would provide high-speed Internet access and enhanced data services to mobile handsets.

MobilCom had planned to spend around 2.5 billion on a 3-G network in Germany.

But France Telecom, which is attempting to reduce a 65 billion mountain of debt, is now refusing to discuss investment plans until the two sides can agree on the details of the partnership.   

"France Telecom is determined to take this to a tribunal if necessary. There will be no compromise," Reuters quoted an industry sources as saying. "France Telecom agreed to support MobilCom's UMTS plan as long as the fundamentals were agreed on. In other words, the business plan and the budget."

The dispute has deepened due to a controversial share scheme involving Schmid's wife.

"France Telecom just wants to make sure that the funds it is putting into MobilCom are going towards UMTS networks and not anything else," the Reuters source said.

"They are not going to finance just anything and they are absolutely determined to get this affair clarified."  

MobilCom shares were down 4.4 percent in late Frankfurt trading on Thursday. Shares in France Telecom rose 4.4 percent in Paris.