Vivendi Sues T-Mobile Over Polish Investment

A long-simmering dispute among major wireless carriers took a nasty turn Tuesday when Vivendi announced it had filed a racketeering lawsuit against rival T-Mobile.

Vivendi’s suit claims T-Mobile “illegally appropriated” US$2.5 billion that Vivendi invested inPolska Telefonia Cyfrowa, or PTC, a Polish wireless carrier. The suit claims T-Mobile and parent company Deutsche Telekom misspent the funds “through a pattern of fraud and racketeering.”

While the dispute is not new, the tactics significantly ramp up the controversy. Vivendi sued under the Racketeer Influenced and Corrupt Organizations Act, or RICO, a statute typically used against organized crime.

The action claims that T-Mobile colluded with Zygmunt Solorz-Zak, who controls another Polish company,Elektrim — with which Vivendi has a joint venture relationship to operate PTC — to misappropriate Vivendi’s investment.

“Vivendi considers that T-Mobile and Mr. Solorz’ Elektrim illegally appropriated its $2.5 billion investment in PTC and, at every turn, have defied court orders,” said Vivendi Chairman Jean-Bernard Levy. “Vivendi asks the court for a simple remedy: Give us back our money or our PTC shares. Fairness and justice must prevail.”

PTC is one of the largest mobile carriers in Eastern Europe, with some 8 million subscribers and 40 percent market share in Poland.

Stake at Stake

The dispute centers primarily on whether T-Mobile has a right to exercise an option to purchase a 48 percent stake in the Polish wireless firm. Vivendi insists Elektrim cannot sell the stake, arguing that control of the ownership block belongs to a holding company that Elektrim and Vivendi own together.

The dispute goes back nearly seven years and has heated up recently. A European court ruled in June that Elektrim, which had previously filed for bankruptcy, could sell the stake. Vivendi has appealed that ruling in a criminal complaint that it claims is meant to prevent any premature sales of assets.

Vivendi’s use of RICO is a tactic that takes into account T-Mobile’s significant U.S. base of operations.

The RICO Act, passed in 1970, gives law enforcement a powerful tool to tackle organized crime by providing broad powers to seize assets believed to be gained through illegal means.

Overlapping Investments

The details of the dispute are unique, but the fact that the two companies have crossed swords is not surprising, given the increasing consolidation in the wireless business worldwide.

“As wireless companies grew, especially in emerging markets, many investments were made, and as things started to come together through consolidation, some of them started to overlap,” said telecom analyst Jeff Kagan.

Many wireless and telecom companies have eyed emerging markets such as central and eastern Europe, along with Latin America, China and India, because growth there is expected to far outpace the rate of expansion in the U.S., western Europe and other established markets.

“The carriers are going to look for ways to monetize their established user bases but also want to be in position to capture the growth still out there in the world,” Kagan noted. “That leads a lot of companies to the same few market opportunities.”

Other tech firms are eyeing the same opportunity. Dell and IBM recently made investments in the eastern European region in order to more easily service growing markets there.