Sweetening the terms of a U.S. merger not only improves Deutsche Telekom's chances of getting a deal done, but may also pave the way for what some investors and bankers think it really wants - to reduce its exposure to a highly-competitive market.
The German group's T-Mobile USA unit lacks the critical mass to take on bigger U.S. rivals Verizon, AT&T and Sprint and has been losing market share.
Having struck a deal to merge T-Mobile USA with smaller U.S. rival MetroPCS, Deutsche Telekom on Wednesday bowed to pressure from some MetroPCS shareholders to improve the terms of the tie-up in the hope of winning their support.
However, some analysts think the combined firm will still be too small, and two sources familiar with Deutsche Telekom's thinking told Reuters on Wednesday the deal could be a prelude to the sale of a controlling position in its U.S. business.
"MetroPCS is not a game changer for T-Mobile, although it should have it to make it more attractive," said one of the sources.
"Deutsche Telekom is willing to give up control of T-Mobile. T-Mobile is in play."
Deutsche Telekom declined to comment.
The German group has been battling for years to find a way of making T-Mobile USA stronger. In 2011, antitrust regulators blocked a $39 billion bid from AT&T for T-Mobile USA, and Deutsche Telekom has twice held talks with Sprint in the past.
Analysts said the new terms of the deal with MetroPCS, which include reducing the debt of the combined group, would improve Deutsche Telekom's chances of winning support from MetroPCS shareholders in a vote on April 24.
Leading dissident shareholders Paulson & Co and P. Schoenfeld Asset Management LP (PSAM) both said on Thursday they were dropping their opposition to the tie up, meaning the fight is likely over.
Analysts also said a less indebted combined firm would make it a more attractive takeover target in a U.S. market ripe for more consolidation and that, as the merged firm will be listed, Deutsche Telekom could eventually cut its 74 percent stake.
"A less indebted MetroPCS will be better equipped to compete in the U.S. market," said analyst Robin Bienenstock of Sanford C. Bernstein. "More importantly, this combination will give Deutsche Telekom a better 'currency' for future consolidation in the U.S. market, that we still think probable," she added.
However, Deutsche Telekom will not be able to reduce its stake quickly, as under the revised deal terms with MetroPCS, it has lengthened the period that it cannot sell its shares in the new company from six to 18 months.
THE NEXT MOVE?
By tying up with MetroPCS, Deutsche Telekom hopes to provide T-Mobile USA with the spectrum to build a network capable of handling the vast data volumes that U.S. consumers and businesses use on smartphones and tablets.
Some Deutsche Telekom shareholders, however, worry that even a successful MetroPCS deal might not be enough for T-Mobile USA to catch up with rivals.
T-Mobile USA lost 515,000 contract customers in the fourth quarter of 2012, although it recently announced first-quarter data early showing smaller losses of 199,000 contract customers.
T-Mobile USA recently overhauled its tariffs to eliminate most phone subsidies and started selling Apple's iPhone after years without it. But its network quality lags Verizon and AT&T which have invested massively in fourth-generation mobile technology in recent years.
"T-Mobile USA is squeezed at the bottom end by cheap plans and squeezed at the top end because others have invested a whole lot more money and have got a better offer in terms of network cover and quality of handsets," said a top 50 Deutsche Telekom shareholder on condition of anonymity.
"By trying to sell T-Mobile USA, Deutsche Telekom told us what they really thought."
Analysts and investors said possible suitors in the coming years for a combined T-Mobile USA-MetroPCS could be third-place Sprint, which is now backed by Japan's Softbank, or U.S. satellite service provider DISH Network Corp, which owns $3 billion in mobile spectrum but has no network.
Backed by billionaire chairman Charlie Ergen, DISH wants to diversify beyond its core pay-TV business, which has matured and faces tough competition from cable, telecom and the Internet.
Stoking deal speculation, DISH recently raised $2.3 billion in debt and Macquarie analysts estimate it will have more than $10 billion cash by the end of the second quarter.
"The only deal available to DISH as an operator is T-Mobile," said one of the sources familiar with Deutsche Telekom's thinking. "They want a network they can use to offer customers fixed and mobile deals."
The source added that neither Softbank nor DISH were likely to want a deal that would not give them absolute control.
Softbank and Sprint spokespeople were not immediately available for comment. DISH declined to comment.
(Additional reporting by Leila Abboud, Arno Scheutze, and Sinead Carew; Editing by Mark Potter)