Rivals slam EU loans for mobile firms

TWO of the biggest mobile phone operators have received cheap loans of more than £700 million from a European Union-funded bank set up to help regional development. T-Mobile, owned by Germany's Deutsche Telekom, and Orange, owned by France Telecom, received finance from the European Investment Bank at far less than the usual cost of borrowing, Financial Mail has established.

The bank is owned by member states of the EU and makes long-term loans without having to show a profit. A spokesman for the bank said only projects that underpinned European economic growth were considered. But rivals attacked the deal. One industry executive said: 'It seems astonishing that mobile phone companies in the UK can receive cheap EU money.

'Both companies had access to ordinary capital markets and both of them generate huge amounts of cash.' Vodafone and mmO2 have each received EU grants, but these were aimed at improving mobile phone coverage in the Highlands & Islands region of Scotland where a sparse population makes it uneconomic to invest in networks. Both firms denied receiving cheap EU funds for general capital spending.

T-Mobile has received two loans totalling more than £500 million from the bank. The first, made in 1998 when the company was jointly controlled by Cable & Wireless and US-based MediaOne, was for £200 million. The mobile operatorwas asked to pay interest at only one quarter of a% more than the rate banks charge each other.

Normally only the world's largest and best capitalised companies could get access to funds at such a low price. The deal includes a £100 million guarantee from the European Investment Fund, another EUbacked development body.

The second loan to T-Mobile came in May 2001 after it had been bought by Deutsche Telekom and little more than a year after it had paid more than £4 billion for a licence to provide third-generation services in Britain. The loan of £300 million was given to the business so that it could 'upgrade the company's systems and its technology', according to a bank spokesman.

A source close to Orange said last week: 'Why did we borrow from the European Investment Bank? Because we could. That is efficient funding.' A bank spokesman said the loans could be justified under its charter as benefiting the EU as a whole.