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DT scoops up another U.S. wireless network

VoiceStream Wireless, which was recently bought by the German communications giant, says it will buy U.S. cell phone company Powertel for $5.75 billion.

VoiceStream Wireless, which was recently bought by German communications giant Deutsche Telekom, said today that it will buy U.S. cell phone company Powertel for $5.75 billion.

The deal hinges upon the completion of Telekom's $45.7 billion purchase of Bellevue, Wash.-based VoiceStream, which was announced in July.

Telekom said that after the completion of its merger with VoiceStream, VoiceStream will buy West Point, Ga.-based Powertel to expand its wireless reach in the United States. VoiceStream will use Telekom stock to pay for the deal.

Under the terms of the deal, Powertel shareholders will receive 2.64 Telekom shares for each share of Powertel common stock. Telekom will assume approximately $1.2 billion in Powertel debt.

The buy follows recent moves by Telekom and other international carriers to crack the lucrative U.S. communications market.

"I think it's a great deal" for U.S. consumers, said Elliott Hamilton, executive vice president at Strategis Group.

The acquisition was long expected by analysts, Hamilton said, because Powertel had a strong presence in the southeastern United States, the only area in which VoiceStream lacked significant coverage. Powertel was "the last big plum" available for picking by VoiceStream, Hamilton said.

VoiceStream's expansion plans are likely to focus on the auction of local wireless licenses by the Federal Communications Commission. DT has given VoiceStream $5 billion to spend at those auctions.

Though the wireless data market is still in its infancy, the market potential is huge. Most of the major mobile carriers in the United States have started offering cellular Web services, trailing European carriers. By 2003, industry analysts expect there will be more than 1 billion mobile phones in use around the globe.

At the end of June, Powertel had about 727,000 customers and year-to-date total revenues of $212.3 million, the company said. Powertel has 2,500 employees in regional offices in Atlanta; Birmingham, Ala.; Jacksonville, Fla.; Louisville, Ky.; and Memphis, Tenn.

Telekom, which has about 25 million European mobile phone subscribers, last year reported profits of $1.21 billion on revenues of $33.14 billion in Internet, standard telephone and wireless services.

"Powertel is a natural fit into VoiceStream's ever expanding nationwide footprint," John W. Stanton, chief executive of VoiceStream, said in a statement. "Powertel brings a substantial number of new customers and a terrific operating team of employees."

Several lawmakers in Washington oppose DT's acquisition of VoiceStream because of the German government's ownership stake in the former. A hearing on that issue is scheduled for Sept. 7 in the House, where Sen. Ernest Hollings, D-S.C., the leading opponent of foreign-government ownership of U.S. spectrum, will be the star witness.

"I don't think lawmakers will be any more concerned" as a result of the Powertel deal, Hamilton said. He said "there's not enough to nix" the Telekom-VoiceStream deal, and he predicted congressional opponents would have their concerns addressed in the regulatory process.

News.com's Patrick Ross contributed to this report.