Germany and Italy have long led a trans-Alpine love affair. The Germans flock to Italy's southern sun and envy the passionate zest for life of their Mediterranean neighbors, and the Italians reciprocate with a pronounced admiration of Teutonic success and efficiency.

That bilateral affection, however, is unlikely to be discernable in a merger between

Deutsche Telekom

(DT) - Get Report

and

Telecom Italia

(TI)

, which the two companies Sunday confirmed is in the works.

The new company would form the world's largest telecommunications company, capitalized at about 200 billion euros. And to be sure, a Deutsche Telekom-Telecom Italia merger would provide revenue and cost benefits because of the substantial traffic between Bonn and Rome.

However, potential problems for the deal go well beyond an inevitable run-in with the

European Union's

competition authorities and Italy's demands that the German government sell its majority stake in Deutsche Telekom.

Bloated Hens

Not only is the jury still out on the bigger-is-better argument, but the two companies in question are bloated hens in an industry inhabited by chicken hawks. Over the course of last year when Germany liberalized its phone services market, Deutsche Telekom -- still more than 70% owned by the government -- lost significant market share in its businesses to the nimbler competition.

And although Telecom Italia shares will likely pick up steam as the German company rescues it from a takeover by

Olivetti

, the former state-run telecom would only be a junior partner to Deutsche, which is offering a 30% premium for the Italian company, in a likely 60-40 partnership.

"It is a surprise that they are proceeding down this line," says Stephen Hammond, a telecom analyst for

Commerzbank

in London, whose firm has an investment banking relationship with Olivetti.

Hammond isn't alone. Investors and traders were decidedly underwhelmed with the proposed deal and pushed Deutsche Telekom shares down Monday 0.7% to end at 37.90 euros. Trading in Telecom Italia shares was suspended for the day.

Telekom could have more to gain from other partners that would cover its traditionally weak areas, most importantly the lucrative U.S. market.

Reports surfaced in the German press on Monday that Deutsche Telekom's CEO has initiated talks about the possible takeover of the U.S.'

Sprint

(FON)

. If Deutsche Telekom pulled off such a bold move, the deal would catapult it forward and make it a true international heavyweight.

In the mobile market, Deutsche Telekom has an opening in the profitable U.K. "The most obvious choice would be the

Cable & Wireless

(CWP)

and

MediaOne

joint U.K. venture

One2One

. It's known to be up for sale and I think it's highly likely that DT is looking at that as well," says Commerzbank's Hammond. The analyst maintains a buy rating on both Telecom Italia and Deutsche Telekom.

Deutsche Telekom would also lose its global alliance if the proposed merger went through.

A clear loser in all of the commotion is the state-run

France Telecom

(FTE)

, which had swapped 2% of its shares in a strategic alliance with DT.

France Telecom said Monday that any plans for the German company to merge with Telecom Italia would be incompatible with that alliance. France Telecom's shares slid 5.4% in Paris to 76.50 euros, as it looked more likely that it will be left out in the cold and without a global partner.

Time will tell if the transalpine telecom is a winner or not, but if Deutsche Telekom can't continue its foreign tour, DT Chairman Ron Sommer may find he would have preferred an American whitewater rafting trip over a sunny Mediterranean holiday.