BERLIN -- In the pickup bar that is the European telecommunications industry, another romance has blossomed. On Thursday,

France Telecom

(FTE)

announced it will acquire 28.5% of Germany's third-largest telco,

MobilCom

, for a cool 3.74 billion euros ($3.59 billion).

At first glance, it would seem a perfect match. Ever since its acrimonious break with

Deutsche Telekom

(DT) - Get Report

last spring, France Telecom has desperately needed to gain access to the key German market. For MobilCom, the deal means its hopes of consolidating and expanding its position domestically will receive the backing and support of a major European player.

A closer look, however, suggests that although the alliance ultimately may strengthen both companies, it won't completely eliminate the formidable challenges facing either of them. Indeed, the deal itself actually may cause its own share of headaches as well.

Indeed, investors took a mixed view of the news, with France Telecom ending up 5 euros, or 2.8%, at 183, and MobilCom tanking 43.80 euros, or 22%, to 155.20.

Although France Telecom might like to see the bid as a first step to a complete takeover of the German carrier, Gerhard Schmid, MobilCom's mercurial chairman and founder, will retain 40% of the company's shares. Known for his direct style, Schmid may be loath to sell later on down the road depending on how things develop.

And without majority control, questions arise as to how much French Telecom can really get out of the deal. "Strategically, this move makes a lot of sense,

but one concern would be the extent to which France Telecom would be able to extract synergies from a minority investment," says Viktor Shvets, an analyst for

TST Recommends

Donaldson Lufkin & Jenrette

in London. Shvets rates France Telecom a buy, and DLJ has no investment banking relationship with either company.

After recently having German wireless operator

E-Plus

snatched out from under its nose by Dutch rival

KPN

, France Telecom will plug a critical gap in its European coverage. Some might say France Telecom is considerably better off allied with MobilCom. The reason? Besides being the No. 3 telecom company in Germany, with respectable wireless and fixed-line operations, MobilCom also has the country's fourth-largest ISP

freenet.de

.

For its part, MobilCom certainly can use the infusion of cash and support, as the company's star has waned in the past year. Once the highflying, scrappy upstart shaking Deutsche Telekom's cage, MobilCom's share price is down sharply from its all-time highs. Part of the problem started when Deutsche Telekom slashed prices to match the low-budget telephony resellers like MobilCom. That helped Schmid's operations and its ilk lose much of their appeal to newly price-conscious German consumers, and as costs continue to sink, MobilCom will remain exposed regardless of who in Paris is rooting for it.

Perhaps the most important aspect of the deal for both companies is the increased likelihood they can successfully bid for a third-generation UTMS wireless license. With the German government probably auctioning up to only six of the national licenses this summer, competition will be fierce and expensive.

Should a joint MobilCom-France Telecom UTMS bid be successful, the two companies would be in the German wireless hunt behind

Mannesmann

(MNNSY)

and Deutsche Telekom for years to come. The MobilCom-France Telecom relationship would also go a long way in proving their romance isn't just a spring fling.