THE mobile phone giant Orange was wading into a battle with German operator MobilCom yesterday as it posted its first ever pre-tax profit of 386 million (oe239 million).

MobilCom's chief executive Gerhard Schmid, threatened to resign if Orange, 85 per cent owned by France Telecom, failed to honour commitments to finance the roll-out of its third generation (3G) mobile network.

Schmid also said he had exercised an option forcing Orange to buy most of his personal 39.7 per cent stake in MobilCom, but Orange had claimed he had no grounds to use the option.

Schmid said: "The decision that has to be made is: either the 3G network will be built quickly, or France Telecom takes over MobilCom."

He added: "Either we build the network as planned and I am in, or we do not and I am out. If France Telecom owns the company, they can do as they like."

Both Orange and its parent company have been keen to see investment cuts at MobilCom, one of six groups which paid 8.4 billion for 3G mobile phone licences in Germany.

Orange deputy chief executive Graham Howe said yesterday that while the German market was the largest in Europe, he believed there would have to be consolidation.

He added that he only saw room for four mobile operators in Germany.

Executive vice-president John Allwood said Orange and MobilCom were "looking to come to some kind of agreement" which could suit both parties .

Schmid has not named the grounds which he has used to exercise his option, but claimed the validity of the claim would be determined by a group of auditors and investment banks.

The option can be enforced if Orange breaches the contract, if its stake in MobilCom exceeds Schmid's, or in the case of a disagreement over strategy.

Orange and France Telecom are understood to be backing a plan which would see Schmid's personal shares bought out by a third party, and provide financing to cover a 4.7 billion (oe2.9 billion) loan which is due to be paid off in August.

Despite the strong figures from Orange, bottom line numbers were impacted by a 3.43 billion writedown on its 28 per cent stake in Mobilcom.

It posted a widened net loss of 4.52 billion euros (oe2.8 billion) from 1.32 billion (oe816 million) last year.

The figures were released as parent company France Telecom reported a bottom line loss of 8.3 billion (oe5.1 billion), the second largest loss in French corporate history.

But Orange, which has expanded its global customer base by 29 per cent to over 39 million people, was one of the few bright spots in the French firm's figures.

Howe said Orange was "well positioned" going forward, adding that it was now the UK's largest mobile phone operator with a 28 per cent market share.

Orange also said it is planning to sell its 25 per cent stake in Wind, an Italian joint venture with energy company Enel.