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Deutsche Telekom OKs deal

$50.7 billion purchase of VoiceStream gives firm foothold in U.S.

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FRANKFURT, Germany — Deutsche Telekom has agreed to pay $50.7 billion for VoiceStream Wireless Corp., giving Europe's biggest telecom company its first foothold in the United States.

The deal, however, faces opposition in Washington since Deutsche Telekom is majority owned by the German government. European officials have said they don't expect that opposition to hold up a trans-Atlantic telecom deal.

Despite being unprofitable and only 1 year old, VoiceStream wireless was an attractive property for Deutsche Telekom because it's growing rapidly, has licenses covering many major U.S. markets and is not part of a larger company.

VoiceStream also makes a good fit with the German company because it uses the global system for mobile communications, or GSM, the most popular digital cellular standard outside the United States. Deutsche Telekom was believed to be considering overtures to two other U.S. telecom operators, Qwest and Sprint.

Concerns about the high price Deutsche Telekom is paying as well as the opposition in the U.S. Congress sent Deutsche Telekom's stock falling 3 percent in early trading in Frankfurt Monday.

"It was a hell of a price to pay," said Dennis Gross of Williams de Broe. "If it had been with Sprint, it would have been perceived as killing two birds with one stone. Deutsche Telekom still needs broadband to complete its U.S. platform."

In 1999, VoiceStream posted a loss of $454.7 million, despite sales of $475.5 million. While those numbers are daunting, they are mostly the result of the year-old company trying to build a customer base.

Deutsche Telekom will offer 3.2 of its shares plus $30 in cash for each share of VoiceStream, based in Bellevue, Wash. That totals roughly $195.75 per share, well above VoiceStream's Friday closing price of $150. The boards of both companies approved the deal Sunday.

In Washington, a group of 29 senators has urged the Federal Communications Commission to consider national security implications of any foreign acquisition of a U.S. telecommunications firm. FCC Chairman William Kennard pledged last week in a letter to the senators that he would give "close scrutiny" to any such takeover attempt.

Deutsche Telekom hopes that those concerns will be allayed by the fact that the VoiceStream deal would reduce the German government's stake from 58 percent to 45 percent.

Deutsche Telekom will pay for the deal by issuing 828.8 million new shares and will also assume $5 billion in debt from VoiceStream. Separately, Deutsche Telekom will invest $5 billion in cash in VoiceStream, which could use the money to bid later this year for U.S. frequencies in the next generation of wireless-phone networks.

VoiceStream, spun off from Western Wireless Corp. last year, employs 8,200 workers. It completed two acquisitions of its own earlier this year: Aerial Communications Inc. for $5.6 billion and Omnipoint for $7.2 billion.

VoiceStream is one of the nation's last independent nationwide wireless carriers. It has about 2.3 million wireless subscribers and owns wireless phone operating licenses nationwide, including in Hawaii.

Deutsche Telekom, which has about 25 million European mobile phone subscribers, last year reported profits of $1.21 billion on revenues of $33.14 billion in Internet, standard telephone and wireless services.

Eager to penetrate the U.S. market as it seeks to expand globally, Deutsche Telekom also had reportedly been weighing overtures to Denver-based Qwest Communications International Inc. and the wireless unit of Sprint Corp.

WEB SITES: www.dtag.de/english/ and www.voicestream.com