Deutsche Telekom to Buy VoiceStream

F R A N K F U R T, Germany, July 24 -- Deutsche Telekom AG has agreed to acquire VoiceStream Wireless Corp., giving Europe’sbiggest telecom company its first foothold in the United States.

Still, investors weren’t sure the VoiceStream acquisition wasthe big merger Deutsche Telekom was looking for, and sent shares ofboth companies plunging more than 10 percent.

The deal still faces opposition in Washington since DeutscheTelekom is majority-owned by the German government. Europeanofficials say, however, that any opposition could have implicationsregarding previously established World Trade Organizationagreements.

Despite being unprofitable and only a year old, VoiceStreamwireless was an attractive property for Deutsche Telekom becauseit’s growing rapidly, has licenses covering many major U.S. marketsand is not part of a larger company.

VoiceStream also makes a good fit with the German companybecause it uses the global system for mobile communications, orGSM, the most popular digital cellular standard outside the UnitedStates. Deutsche Telekom was believed to be considering overturesto two other U.S. telecom operators, Qwest and Sprint.

‘A Hell of a Price to Pay’

“It was a hell of a price to pay,” said Dennis Gross ofWilliams de Broe. “If had been with Sprint, it would have beenperceived as killing two birds with one stone. Deutsche Telekomstill needs broadband to complete its U.S. platform.”

In 1999, VoiceStream posted a loss of $454.7 million, despitesales of $475.5 million. While those numbers are daunting, they aremostly the result of the year-old company trying to build acustomer base. The Bellevue, Wash.-based company currently has 2.3million customers, meaning that Deutsche Telekom is paying morethan $20,000 a customer.

In Washington, a group of 30 senators is urging the FederalCommunications Commission to consider national securityimplications of any foreign acquisition of a U.S.telecommunications firm. FCC Chairman William Kennard pledged lastweek in a letter to the senators that he would give “closescrutiny” to any such takeover attempt.