FRAMINGHAM (07/28/2000) - Deutsche Telekom AG (DT) this week agreed to acquire VoiceStream Wireless Corp. for $50.7 billion. The companies claimed the long-rumored deal will bring more competition to the U.S. cellular telephone market by creating a formidable U.S cellular carrier operating under the international Global System for Mobile Communications (GSM) standard.
The merger faces an uphill battle in Congress, where, Sen. Ernest "Fritz" Hollings (D-S.C.) in June introduced legislation that would prohibit any company directly or indirectly controlled by a foreign government from acquiring a U.S. telecommunications carrier.
The German government currently owns more than 50% of Bonn-based DT.
No Major Threat
A DT spokesman said the German government's interest would be diluted to less than 50% after the merger, and he portrayed the investment as passive. "The government has no influence on the company; it is merely a stakeholder," the DT spokesman said.
Analysts say they don't view the Hollings legislation (S. 2793, the Foreign Investment Act of 2000) as a deal killer. Elliott Hamilton, an analyst at The Strategis Group Inc. in Washington, said the bill isn't a credible threat.
"It's too protectionist," Hamilton said. "It's not going to stop the deal but could delay it, making both companies go through more hoops."
Other analysts said DT, which earlier this year wooed Denver-based US West Inc., has offered a high premium for Bellevue, Wash.-based VoiceStream as a way to gain access to the U.S. market.
"The price is extremely high," said Bernt Ostergaard, a telecommunications analyst at Giga Information Group Inc. in Copenhagen. "They're paying this huge premium for each individual subscriber to VoiceStream."
Based on VoiceStream's claim of having served 2.29 million customers last quarter, the DT offer amounts to more than $22,000 per subscriber.
In other recent wireless mergers, such as Vodafone AirTouch PLC's takeover of Mannesmann AG and France Telecom's purchase of Orange PLC, values have ranged from $5,000 to $10,000 per subscriber, Ostergaard noted.
Though VoiceStream has slightly more than 2 million subscribers, it has licenses that cover a population base of 220 million potential subscribers.
Company officials said they see the DT deal as a means of gaining the capital to build out the VoiceStream network and to bid on new licenses in the U.S. spectrum auction this fall.
DT said it will buy $5 billion in VoiceStream preferred stock this quarter to give the company the financing needed to accelerate network and service upgrades.
Perera writes for the IDG News Service in Berlin.