Telekom opens door to US with $50bn deal

Deutsche Telekom confirmed yesterday that it had agreed to acquire VoiceStream Wireless of the United States for $50.7bn (£33.5bn). The high price tag and concerns about political opposition to the deal in Washington made investors nervous, however, sending Telekom shares tumbling in Frankfurt.

Deutsche Telekom confirmed yesterday that it had agreed to acquire VoiceStream Wireless of the United States for $50.7bn (£33.5bn). The high price tag and concerns about political opposition to the deal in Washington made investors nervous, however, sending Telekom shares tumbling in Frankfurt.

A year old and without any record of profit, VoiceStream is only the seventh wireless company in the US. Some analysts agreed none the less that it offers a good fit for Deutsche Telekom, which has been searching relentlessly for some kind of toe-hold in the US wireless market. Advantages include the fact that VoiceStream, based in Bellevue, a suburb of Seattle, uses the global system for mobile communications, or GSM, which is the standard in Europe. This will enable customers of the new company to use phones with equal ease in Europe and North America.

"As a marketing man, my heart laughs," Telekom's chairman Ron Sommer said at a press conference. "What is better for me than to say to customers that you can use the same network in the US and in Europe?" Mr Sommer, who had previously failed in attempts to woo the US firms Qwest Communications and Global Crossing, acknowledged that he was paying dearly for VoiceStream. "We cannot claim that the price for this transaction is a particularly low one," he conceded. "However, you cannot invest in any company on the US telecommunications market for bargain prices".

Telekom shares were down 6.70 euros at 48.40 euros in late trade yesterday.

Telekom is to pay $30 and 3.2 of its own shares for each share in VoiceStream. That works out at $194.8 a share or the equivalent of $24,217 per VoiceStream customer - roughly seven times what Vodafone paid for each customer when it bought AirTouch Communications in the US last year. This helped depress Telekom shares, which at one point yesterday were off by almost 10 per cent.

Further dampening enthusiasm for the deal were the rumblings of political opposition in Congress to the purchase of any US telecommunications firm by a foreign entity with a large state shareholding. Deutsche Telekom is 58 per cent owned by the German government. The possibility of political intervention became apparent four weeks ago when rumours surfaced of a possible acquisition of Sprint Corp by Deutsche Telekom. Thirty US Senators wrote to the Federal Communications Commission (FCC) noting US rules discouraging the sale of US telecoms to foreign firms. Efforts have meanwhile got under way to pass a bill that would make any such transaction illegal.

Last Thursday, the chairman of the FCC, William Kennard, reassured Congress that he would indeed ensure that any takeover of a US firm by Deutsche Telekom would be subjected to "close scrutiny".

A concerted move by Washington against the Telekom-VoiceStream deal could add further strain to the transatlantic trade relationship. A spokesman for the EU Commission, Michael Curtis, noted yesterday that any bill of the type now being discussed could contravene rules of the World Trade Organisation. "We are watching this very closely. If the bill were adopted, it would restrict foreign ownership of the US telecoms firms, which is contrary to commitments given in the WTO," he added.

Telekom has long had its eye on America, in part because it is not as fully exploited as Europe. While about 40 per cent of the European population is already hooked to mobile phones, in America the figure is still less than a third. VoiceStream has been pushing hard to expand its consumer base, notably with advertisements featuring the actress Jamie Lee Curtis. If the firm grows its subscriber numbers to four million by the end of this year, the per-customer cost of yesterday's deal for Telekom could fall to about $10,000.