Analysis Well - the fight over one of Europe's key mobile markets, the UK, has suddenly turned decidedly teutonic. Not long after Deutsche Telekom paid a remarkable sum to acquire One-2-One, its homegrown nemesis, Mannesmann, hit back by gobbling up Orange. The stakes are now getting dizzyingly high; Mannesmann ended up paying about $7,000 dollars per subscriber... double the amount DT paid for its foothold. A couple of caveats: of course Mannesmann is not paying that much for the existing subcriber base - it's paying for the future customers Orange is likely to sign up in short order. After all, England is now expected to hit the 50 per cent mobile penetration mark by the end of next year and Orange has been remarkably successful in grabbing market share from the established British mobile champions, Vodafone and Cellnet. Nevertheless, it's hard to avoid the impression that the M&A boom in the mobile telecom industry is now starting to boil over. Mannesmann had earlier pulled off an enviable coup in acquiring Omnitel, the Italian mobile operator that is one of the continent's hottest properties. Deutsche Telekom retaliated by getting a foothold in the UK via One-2-One - and as soon as Mannesmann crowded into the British market, DT announced an ambitious acquisition bouquet in Eastern Europe, giving it stakes in mobile operators all over east of Danube. There aren't many obvious growth market plays left in Europe, which raises the question about the second stage of the Mannesmann - DT rivalry. A sign of the times: the ultimate takeover bait in the US industry, Voicestream, has now zoomed from its May share price of $20 to over $90 during a span of a few dizzy summer months. If markets are already concerned that Mannesmann overpaid for Orange - just wait for the Voicestream take-over price. Actually, that's exactly what the markets have been doing. They have been pricing in the takeover premium into the Voicestream share price, since it looks like such an obvious target. Which leaves the putative acquirers in a tough situation - will they pay a premium over the premium already built into Voicestream price? Can they afford not to? Voicestream is the stand-out in the current US mobile operator third quarter reporting season. By delivering a 135 per cent growth in subscriber additions compared to the same period during 1998, the company was able to demonstrate far more robust growth than the sluggish AT&T and managed to clearly outperform Nextel and Sprint, the other two leading national players. But that's just the growth advantage - in absolute terms, Voicestream added just 122,000 subscribers, far less than the national leaders. The aggressive corporate strategy of the company has led to recent acquisitions like Omnipoint and Aerial, which will add some bulk to Voicestream. Ambitious new build-ups in major markets are expanding Voicestream's grasp. And Omnipoint's recent move to acquire rights to build networks in Los Angeles and Washington DC will turn the Voicestream/Omnipoint entity into a genuinely national player. All this frantic activity combined with superior growth would seem to make Voicestream an irresistible target for European operators who have now more or less divided the major European markets among themselves. The fact that Voicestream uses GSM like its European counterparts adds another seductive lure -all that international mobile roaming income that could be unlocked with the right marketing and packaging! Is this the best acquisition prospect ever or what? Well - no. Not necessarily - and not at a substantial premium. Because behind the glitter and glamour of a US acquisition lurks a dark menace to putative European acquirers. Voicestream is probably going to turn into the mother of all money pits in the short term. Building new networks in places like Los Angeles to attack AT&T and Sprint is extremely expensive - the American urban sprawl has already defeated the quality aspirations of the deep-pocketed Sprint and AT&T, leading to patchy coverage and high churn rates as irritated customers sign off. Voicestream needs an expensive, national marketing campaign to turn it from a successful regional operator into a major force. And as good as the roaming angle sounds, it also demands a massive overhaul of roaming agreements with European partners, a big ad campaign to familiarise consumers with the concept and price cuts in roaming rates to make people embrace the idea. So the potential pay-off is massive - but this pot of gold lies years in the future and demands a very strong investment commitment. All this probably means that Mannesmann simply can't afford the venture. Its recent acquisitions have already strained the investor-relations of the company. Deutsche Telekom is a far more likely candidate - the company has lost a few high-profile bidding wars and is criticised constantly for being too staid. Apparently France Telecom is now content with bulking up its European mobile network to become as cohesive and extensive as possible - and Telefonica has probably wisely decided to focus on gaining South American supremacy and leveraging its latin brand to the max. Which may mean that Deutsche Telekom will compete with Hutchison or some American company for gaining the privilege to start pouring billions into Voicestream. Both have the capital - DT landed a windfall for selling its stake in Sprint for an exorbitant price and Hutchison pulled off more or less same trick with Orange. But Hutchison's real interests probably lie in the mainland China; getting the right to invest in China Telecom or China Unicom may be the dream ticket for Hutchison with its corporate history elaborately intertwined with Hong Kong's. But if China decides to pull out of WTO negotiations, it's extremely unlikely that the draconian mainland rules on foreign telecom investments will be relaxed. In this case, Hutchison's global ambitions might turn to North America. The stake Hutchison retained in Orange leaves the door open for some sort of a global branding deal with Mannesmann/Orange. If that happens, the fight for Voicestream may turn into another teutonic grudge match after all. ® Tips? Rants? Raves? Inside info? Give a piece of your mind to Tero. Confidentially: email@example.com Tero Kuittinen is the Vice President of Wireless Telecommunications, an investment firm based in New York. The firm may hold positions in companies featured in his columns. The opinions expressed in the columns are personal views of Mr. Kuittinen and they should not be interpreted as investment advice.