VoiceStream-Deutsche Telekom Talk Sets Up a Bidding War

Powertel and Microcell stand to get snapped up as well.
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VoiceStream

(VSTR)

is shaping up as the first in a line of North American wireless dominoes.

Wired About Wireless

Despite VoiceStream Talk, Sprint's Still No. 1 for DT

Whoever wins the bidding for the U.S. wireless operator, mentioned Tuesday as a possible takeover target of

Deutsche Telekom

(DT) - Get Report

, attention will turn next to

Powertel

(PTEL)

, analysts say. Powertel operates wireless service primarily in the Southeast, using the same internationally favored wireless standard as VoiceStream and the European telcos that are rumored as potential suitors. VoiceStream, which has a national presence, is weakest in the Southeast, observers say.

And the fun needn't stop there.

Microcell

(MICT) - Get Report

, the Canadian wireless operator in which VoiceStream owns a 15% stake, could be the next to fall after VoiceStream and Powertel, say analysts who expect a deep-pocketed big foreign telco -- say, Deutsche Telekom or

France Telecom

(FTE)

-- to pursue all three properties in creating a strong North American presence. DT wouldn't comment on specific deals, and France Telecom didn't immediately return calls seeking comment.

The two smaller players barely rate a throw-in in terms of price, considering the rich valuation investors are placing on VoiceStream, some $30 billion. Powertel is worth just $2.6 billion at Tuesday's market prices, and Microcell $1.6 billion.

Shares of VoiceStream, a longtime Wall Street favorite when it comes to buyout talk, rose 12% Tuesday morning on reports that Deutsche Telekom was weighing a $30 billion-plus bid. Powertel shares rose 11% as wireless consolidation talk intensified, and Microcell shares added 8.4% as dealmaking fervor spread north. With potential deals involving DT,

Worldcom

(WCOM)

and

Sprint

(FON)

rocking the telecom world in recent weeks, expect these shares to endure more turmoil.

Single Standard

Analysts point out that VoiceStream, Powertel and Microcell all operate wireless networks on the global systems for mobile communications, or GSM, standard. That would make these companies' assets compatible with the systems operated by the likes of DT and FT in Europe. Other standards, known as TDMA and CDMA after their transmission protocols, currently hold a dominant position in the U.S., but the U.S. is considered a robust and underpenetrated market compared with cellular-happy Europe and Asia.

The logic behind VoiceStream bidders seeking a Powertel buy is strong. A VoiceStream-Powertel combination would give its owner a national GSM footprint. By the same token, Powertel could become a hot property for any rivals of a VoiceStream acquirer, as Powertel would offer the lone remaining GSM foothold in the lucrative U.S. market, says Art Poole, a wireless telecom analyst with

Raymond James

, which hasn't underwritten for these wireless carriers.

A VoiceStream competitor could combine Powertel's network with roaming agreements, forcing VoiceStream into a rivalry with its nationwide GSM service, explains Poole, who has a strong-buy rating on VoiceStream and no ratings on other companies mentioned in this article.

Hard Cell

The logic behind a Microcell deal is similar, though Canadian law isn't currently configured to permit such a transaction. Still, with consolidation sweeping the telecom industry, observers expect restrictions to be loosened soon enough.

Foreign investors aren't currently permitted to own a majority of Microcell under Canadian law. But there has been pressure to change these restrictions, according to Lorne Abugov, a partner at

Osler Hoskin & Harcourt

.

"It's only a matter of time until those restrictions come down, at which point Microcell would make the perfect fit for any carrier who wants a North American GSM presence," says one analyst.