MobilCom: The fallout begins

LONDON, England -- As with any major shake-up in any industry, the demise of German mobile phone company MobilComs could produce as many winners as losers.

The troubled telecom sector was given a severe battering on Friday after France Telecom decided it would no longer fund mobile phone company MobilCom's high-speed mobile phone network expansion ambitions -- terminating all links with its cash-hungry German affiliate. (Full story)

As a result, telecom equipment makers Nokia and Ericsson stand to lose hundreds of millions of euros as MobilCom files for insolvency. (Full story) But others -- like Dutch phone operator KPN and British mobile operator mm02 -- should reap the benefits by signing up MobilCom customers.

Ericsson and Nokia, the two biggest suppliers of mobile phone network equipment, have already been hit hard by a virtual freeze on spending as operators in Europe struggle with their finances and the global economic slowdown.

Carriers have delayed the launch of high-speed third-generation mobile networks because of costs and technical difficulties.

Ericsson had promised to lend 800 million euros to MobilCom to buy the Swedish company's equipment. Some of that credit has already been used.

On Friday, it had agreed to convert its loans to ailing German operator MobilCom into a 444 million euro convertible loan issued by France Telecom.

"The effect of the agreement will be that Ericsson no longer has exposure to MobilCom. Future exposure will be to France Telecom," Ericsson said in a statement.

Finland's Nokia said earlier this week it would write off 300 million euros in loans to troubled MobilCom in its third-quarter earnings as part of a new financing agreement with the German company's partner France Telecom. It has already decided to withdraw all other financing agreements with MobilCom.

Last month, Nokia cut 900 jobs at its network business to counter a fall in demand. Nokia expects a 5 percent decline in mobile phone network sales in the third quarter, while Ericsson sees a decline of about 15 percent for the whole year.

However, the likely collapse of MobilCom should ultimately boost the fortunes of KPN's German mobile arm E-Plus -- even though it could initially lose out on a 600 million euro ($587 million) contract to carry MobilCom services to 650,000 of the group's 4.9 million customers.

Because MobilCom is a so-called "virtual operator" with no networks of its own, it had to buy capacity from competitors.

But in the long run, the fewer rivals the better for those attempting to get a foothold in Europe's biggest mobile market.

"Each customer gained will push E-Plus closer to profitability. This is especially the case with users of MobilCom, which has a very attractive customer base," Mark-Pieter de Boer, a telecom analyst at Dexia Securities, told Reuters.

Another beneficiary would be Viag, mmO2's German mobile phone unit. Together with MobilCom and E-Plus, it was seen as a main contender to take on the dominate player in the German market, Deutsche Telekom and Vodafone.

And with the decision by Group 3G -- a joint venture between Spain's Telefonica and Finland's Sonera -- to get out of Germany, the playing field is starting to get more level.

"The mobile market in the end will be a 3 or 4 player market -- not just in Germany but in Europe," Paul Norris, senior telecom analyst at Lehman Brothers, told CNN.

Meanwhile, the banking sector has not escape the fallout from France Telecom's decision to dump MobilCom.

Banks, which had lent money to Germany's fifth-largest mobile phone company, were punished in the markets on Friday.

Shares in Dutch group ABN AMRO, which reportedly has an exposure to MobilCom of about 500 million euros, fell along with Germany's Deutsche Bank and France's Societe Generale -- both with unspecified exposure to MobilCom.