What's up, Deutsche?

During its so-called quiet period before a global share offering last month, Deutsche Telekom generated more industry noise than most carriers do in a decade of trade shows.

Armed with a war chest of more than $100 billion, the German telco is at the center of speculation in an industry turned upside down by the apparent collapse of the proposed WorldCom/Sprint merger. If published reports became reality, DT would own almost every telecom interest in the world.

Of course, that will not happen. But the German telco has the resources to pursue virtually any telecom company available and has stated its intent to make at least major acquisitions in the U.S. so it can become a global player. Officials have said any acquisition must fit into the company's "four pillar" strategy of mobile services, consumer Internet, high-speed access and - most important - data/IP services.

After having several potential blockbuster deals fail in recent years, DT must make a strong acquisition, said Eric Kintz, an analyst for Roland Berger & Partners (see chart). Of the many rumored targets, analysts say the most promising are Sprint, Qwest Communications and Cable & Wireless.

The best fit may be Sprint, in which DT already owns a 10% stake. DT made a pitch for Sprint last year but was outbid by WorldCom. Sprint's strong Internet and wireless holdings would fit well in DT's strategy and provide a unique opportunity, said Stephen Kamman, telecom analyst for CIBC World Markets.

"Sprint represents the last coherent operation for a foreign operator to buy to enter the U.S. market," Kamman said.

Coherent, perhaps, but not simple - especially not for DT, which is almost 60% owned by the German government. Securing regulatory approval in the U.S. could be daunting, as news of a possible Sprint acquisition spurred 30 U.S. senators to write a letter asking FCC Chairman William Kennard to "closely scrutinize" bids for U.S. telecom interests by any carrier more than 25% owned by a foreign government.

A federal statute prohibiting such action exists, but the FCC can waive this prohibition if it is considered to be in the public interest.

"Unfortunately, the FCC, in previous rulemaking, has found that the public interest is satisfied solely on the basis of whether the foreign government-owned company is based in a [World Trade Organization] country," said Sen. Ernest Hollings, D-S.C., said in a speech introducing his bill.

Germany is a WTO member, but the senators' letter to Kennard states that fellow WTO members Italy, Spain and Hong Kong have blocked acquisitions in their countries when a foreign government owned the acquiring company.

A DT spokesman said such criticism is unjustified, noting that the German telco's government stake has been reduced from 100% four years ago to 58% today. The German government plans to sell all its shares in DT "according to market conditions and in the interest of the existing stockholders," the spokesman said. Germany's telecom environment is "fully liberalized" and "one of the hottest markets in the world," with more than 30 U.S. companies competing, he added.

Similar political opposition in the U.S. likely would be mounted against any attempt by DT to buy Qwest, which completed its merger with U S West last month.

Wall Street had previously tagged Qwest as the German telco's leading takeover target. Such action would not be surprising: DT made overtures in March for Qwest, which boasts a large fiber network and probably would be cheaper than Sprint, Kintz said.

As for C&W, recent speculation - fueled by a German magazine quoting sources close to DT - is the latest generation of a rumor that has existed for more than two years. Though less desirable to DT than Sprint or Qwest, the former MCI Internet backbone owned by C&W has value and a C&W buy would not generate as much U.S. opposition.

In addition, acquiring C&W for almost $50 billion would not preclude a run at Sprint or Qwest, as such a purchase would enhance DT debt capacity, said P. William Bane, vice president at Mercer Management Consulting.

But Kintz believes that the German telco would turn to C&W only if a U.S.-based telecom firm could not be bought. "I would guess that the U.S. is the top priority for Deutsche Telekom right now," he said.