France Telecom sued over Mobilcom

France Telecom has been sued for $5.74bn (4.26bn euros; £2.99bn) in damages by its former German partner.

Jan Wilhelm, insolvency administrator of ex-Mobilcom boss Gerhard Schmid, said France Telecom has not fulfilled legal obligations.

Both firms reached a settlement in 2002, in which the French company agreed to pay more than 7bn euros ($9.44bn; £4.92bn) of Mobilcom’s debt.

The suit reportedly alleges that France Telecom has failed to honour the deal.

The suit also alleges that the original amount was insufficient to cover the damage done to Mobilcom, and that the 2002 agreement was not binding, the Reuters and Agence France Presse news agencies reported.

Under the leadership of Mr Schmid, Mobilcom obtained the support of France Telecom in 2000 to invest in third generation (3G) mobile phone networks, using UMTS technology.

But in 2001, the French firm balked at the cost of building Mobilcom’s 3G infrastructure, and refused to agree the German firm’s business plan, pushing Mobilcom to the verge of bankruptcy.

France Telecom eventually agreed to shoulder 7bn euros of Mobilcom’s debt, and Mr Schmid pledged not to sue the French company.

“The claim is based on the fact that France Telecom has not satisfied contractual obligations… to fund Mobilcom’s roll-out of a UMTS mobile phone network,” said Mr Wilhelm.

The original rift with France Telecom cost Mr Schmid his job, and he later filed for bankruptcy. He also faced fraud charges in Germany.

Mr Schmid’s insolvency administrator is now arguing that the settlement was not binding, and was insufficient.

Mr Schmid founded Mobilcom in 1991, and was the major shareholder with a 33% stake, which he agreed to sell in 2002 to clear the way for a settlement.

France Telecom held nearly just over 28% of Mobilcom’s shares; strategic disagreements between the two firms hammered Mobilcom’s share price.

The lawsuit has been filed in a regional court in Frankfurt, Germany.