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Deutsche Telekom Mulling Sprint Nextel Takeover

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Germany's Deutsche Telekom is reported to be eying a possible takeover of the USA based Sprint Nextel. The German news magazine, Der Spiegel reported that a combined Sprint Nextel and T Mobile would enable the firm to compete on a more equal footing with AT&T and Verizon Wireless.

"The Sprint project is top priority," the magazine said, although it said that no formal negotiations with Sprint Nextel had started yet. The magazine also noted that the falling dollar made the purchase easier for Deutsche Telekom to finance. Sprint's shares are trading at $7.81 down from the $25 they reached less than two years ago.

According to figures from the Mobile World, a merged company would have ended last year with a subscriber base of 82.4 million customers compared to AT&T (70.5 million) and Verizon Wireless (65.7 million).

Sprint has been in trouble ever since it agreed to a merger with Nextel, which also resulted in substantial extra costs as various Sprint affiliates forced the company into buying them out.

Sprint Nextel is valued at less than $1,000 per customer based on a study of takeover scenarios by Merrill Lynch & Co. published in March.

Any takeover or merger would be a regulatory nightmare though, as the US government would be unlikely to allow a takeover by a company which has a substantial shareholding by the German government - whilst a merger would result in Deutsche Telekom becoming majority owned by US shareholders. The German government in turn may not approve of that result.

Equally, it should be noted that you would end up with a company which runs three networks using different air interface technologies. Whilst cost savings could be driven from merging their respective backhaul and sharing tower infrastructure, it is unlikely that the savings would make for a compelling argument for a merger.

A possible proposal to spin off the iDEN based Nextel network and retain the CDMA and GSM networks would not only make integrating their platforms a lot easier - it would probably please a lot of disgruntled iDEN subscribers who have been ditching the network since Sprint took over.

On the web: Der Spiegel - Mobile World

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