Despite the conclusion that it is inevitable, consolidation among the nation's big six wireless carriers was considered likely to happen only when the market improved.

That conventional wisdom was briefly shelved, and consolidation rumors got a boost today after a

Wall Street Journal

report surfaced about

VoiceStream

holding preliminary merger discussions with

AT&T Wireless

(AWE)

. Reportedly the deal would entail VoiceStream parent

Deutsche Telekom

(DT) - Get Report

acquiring the debt-heavy AT&T Wireless for an estimated $10 billion, creating the country's second-largest provider with 26 million subscribers.

The proposed union has observers scratching their heads, not least of all because wireless operators have been hammered for months. "No one's got the horsepower to do it in terms of their balance sheets," said Morningstar analyst Todd Bernier.

One analyst outright slammed the idea. "We believe that a merger would be a mistake for AT&T Wireless to complete but a positive for the industry," wrote Jefferies wireless services analyst Ben Abramovitz.

What's stymied wireless merger discussions in general -- including those between AT&T Wireless and

Cingular

, and Cingular and VoiceStream -- has been the heavy debt load of the industry, combined with an overall weak cash position. AT&T Wireless has been weighed down by $8.23 billion in debt, with only about $1.6 billion in cash. Beleaguered German communications giant Deutsche Telekom is suffering a blistering $66.7 billion debt load, holding $11.8 billion in cash from operating activities. Its troubles drove rumors that the German government, which owns about 43% of Deutsche Telekom, is looking to unseat CEO Ron Sommer.

Nobody's happy these days that he spent $31 billion last year for a hodgepodge of wireless also-rans. (VoiceStream financials are not broken out separately.) On the desperate list are

Sprint PCS

(PCS)

, which claims $14.3 billion in debt and $1.7 billion in cash, and

Nextel

(NXTL)

, which is $13.8 billion in debt, and $3.3 billion in cash.

Add those concerns to the plummeting stock prices of all of the big six and it's difficult to imagine how the fiscal mechanics of consolidation would work.

Still, consolidation is considered a given, when the market improves. Six major competitors in a market that has seen dramatic growth declines has put increased pricing pressure to stay competitive. VoiceStream, it should be noted, has one of the industry's most aggressive pricing plans, amounting to about 7 cents per minute, compared with the industry average of 10 cents a minute.

Wireless Under the 'Scope

While the acquisition of No. 3 carrier AT&T Wireless would help No. 6 VoiceStream leapfrog the competition on a subscriber base level, Deutsche Telekom has little other motivation to do the deal, and much more to lose. Spending cash at this point would only further incense co-owners, the German government.

Moreover, given the heavy debt load, it would stand to reason that they would be looking to pare down assets -- by selling off VoiceStream for instance -- rather than be the acquirer.

Analysts further criticized the merits of the deal saying that aside from relieving industry-wide pricing pressure, the combination contributes little to either of the companies. AT&T has been on a tear in recent quarters to reduce its pre-paid subscriber base, in hopes to retain higher spending customers that will help drive up the overall average revenue per subscriber, or ARPU.

VoiceStream has one of the industry's highest pre-paid customer base, about 24% of its 7.5 million subscribers, with a 5% churn rate, making it a bad fit with AT&T's current direction. Moreover, VoiceStream's prime benefit would be its spectrum, of which AT&T needs very little.

Quite simply, "They got it backwards," said Thomas Wiesel Partners analyst Ned Zachar. "I think the surviving company would be AT&T Wireless. This is a way for Deutsche Telekom to get out of a position in the U.S. market that hasn't been unbelievably effective."

Wireless Dating Game

More likely, industry sages suggested, was some sort of deal involving Cingular, noted for its deep pocket owners

SBC

(SBC)

and

Bellsouth

(BLS)

. It has been fingered in several scenarios either calling for the combination of Cingular and VoiceStream, or a marriage with AT&T Wireless, which may raise some regulatory concerns, said Deutsche Bank Securities analyst Brian Modoff.

Cingular and VoiceStream present a particularly compelling proposition as they have already rubbed shoulders in recent months, in a deal to share spectrum in certain regions in the country. VoiceStream is preparing to launch in California and Nevada on Cingular-owned spectrum, while Cingular just last week launched in the New York area, on VoiceStream's networks.

Moreover, the one thing Cingular needs is spectrum, which VoiceStream has in spades, said Morningstar's Bernier. VoiceStream "has a fair amount of spectrum that's unused," he said. "AT&T doesn't need the spectrum as much as Cingular." Frankly, "I'm surprised

Cingular hasn't moved," said Morningstar's Bernier. "There have been rumors." Some even speculated that the VoiceStream-AT&T Wireless might have been an artificial catalyst meant to accelerate discussions with Cingular.

But it seems unlikely while Cingular does not trade on the open market as a separate entity. Without shares in the market, such a deal would be a cash-draining proposition and likely to upset shareholders. Perhaps if SBC and BellSouth filed to take Cingular public, then it would be a more rational argument. "To do it now would be stupid," Bernier added.

Whatever the outcome, it's still some time away, most agreed. "It's not game, set, match" yet, said Modoff. "We'll just have to wait and see."