UPDATE 3-D.Telekom'S T-Mobile to buy SunCom for $1.6 bln

(Adds analyst quote, shares, background on U.S. market)

By Nicola Leske and Sinead Carew

FRANKFURT/NEW YORK, Sept 17 (Reuters) - Deutsche Telekom AG's (DTEGn.DE) T-Mobile USA said on Monday it will buy smaller U.S. rival SunCom Wireless Holdings Inc (TPC.N) for $1.6 billion cash to expand its network and cut costs.

The deal is the latest in a spate of acquisitions in the U.S. wireless market as large providers snap up smaller players in order to grow in an increasingly saturated market, where most people already own cell phones.

Under the deal, T-Mobile USA will take on SunCom debt of almost $800 million and give SunCom shareholders $27 per share, a 22.7 percent premium to its Friday's closing price.

The news sent SunCom shares up 17 percent to $25.75.

T-Mobile USA expects the acquisition to result in savings of about $1 billion. T-Mobile USA is a distant No. 4 in the U.S. wireless service market, behind AT&T Inc (T.N), Verizon Wireless, owned by Verizon Communications Inc (VZ.N) and Vodafone Group Plc (VOD.L), and Sprint Nextel Corp (S.N).

Stanford Group analyst Michael Nelson said the deal valued SunCom above other comparable acquisitions as it created more opportunities for savings.

"The acquisition price is probably fair for both parties," he said. "There are so many expenses that can be cut."

Nelson said the deal valued SunCom at 12.9 times his 2007 estimate for earnings before interest, tax, depreciation and amortization (EBITDA), compared with Rural Cellular Corp's RCCC.O agreement to be bought by Verizon Wireless for $757 million, or 10.5 times his estimate for its 2007 EBITDA.

SunCom has only about 1 million customers compared with T-Mobile's U.S. subscriber base of about 27 million. But the merger would expand T-Mobile's network to cover up to 259 million consumers, up from 244 million, the companies said.

SunCom, founded in 1999, operates in the southeastern United States and in the Caribbean and posted second-quarter revenue of $242.5 million.

The acquisition will expand T-Mobile's network coverage in North Carolina, South Carolina, Tennessee, Georgia, Puerto Rico and the U.S. Virgin Islands, the companies said.

M&A DEALS

Nelson said the companies could save by combining applications such as billing and noted that about 90 percent of SunCom's revenue from roaming services already comes from letting T-Mobile USA customers roam on to the SunCom network.

"This acquisition will fit very well with our strategy to grow abroad with mobile primarily within our current footprint within the context of market consolidation," said Deutsche Telekom Chief Executive Rene Obermann. "We can realise significant synergies on the cost side and improve our market presence."