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* ISS advice to vote no may sway Index funds-analyst
* DT could be forced to change debt terms - analyst
* MetroPCS shares closed at $10.53 on New York StockExchange
NEW YORK, March 28 (Reuters) - Deutsche Telekom AG will likely be forced to sweeten the terms of itsdeal with MetroPCS Communications Inc after a proxyadvisory firm recommended that shareholders vote against theproposed transaction, according to analysts.
Corporate governance consultants ISS said late on Wednesdaythat it was backing the efforts of two big MetroPCS shareholdersto block the company's proposed merger with T-Mobile USA, theU.S. arm of Deutsche Telekom.
Paulson & Co, the biggest MetroPCS shareholder, and anotherbig holder P. Schoenfeld Asset Management had both committed tovote against the deal on concerns about the valuation and theamount of debt being assigned to the combined company.
Even so, another big shareholder Madison Dearborn had putits support behind the deal.
Analysts saw a negative recommendation from ISS as a blowagainst DT's current offer which shareholders are set to vote onat a special meeting April 12.
"In our view, this is a very significant development asindex funds tend to follow ISS's lead," said Jennifer Fritzsche,an analyst at Wells Fargo.
Another analyst Jonathan Chaplin of New Street Research saidthat in light of the ISS recommendation, shareholders wouldlikely look for lower debt, less onerous terms on the debt andgovernance changes before they would vote for the deal now.
"We believe the transaction has strong strategic andfinancial merits; however, we have argued that the terms need tobe amended to lower the debt on the pro forma company," Chaplinsaid.
T-Mobile USA, the No. 4 U.S. mobile provider, and itssmaller rival MetroPCS want to pool their spectrum resources andnetworks in order to compete better with bigger rivals such asVerizon Wireless, AT&T Inc, Sprint Nextel.
Under the terms of the reverse-merger announced in October,Deutsche Telekom would end up with a 74 percent stake in thecombined company, and MetroPCS would declare a 1-for-2 reversestock split and pay $1.5 billion in cash to its shareholders.
If the deal collapses it would be a huge blow for DeutscheTelekom, since in 2011 it had to abandon its plan to sellT-Mobile USA to AT&T for $39 billion due to opposition byregulators.
In the roughly nine months it took for that deal tocollapse, T-Mobile USA lost many customers, it having beendistracted from its core business.
On top of these issues the companies are expected to soonface tougher competition from an emboldened Sprint, which hasagreed to sell 70 percent of its shares to Japan's SoftBank Corp for $20 billion.
P. Schoenfeld Asset Management LP, which says it owns about2.5 percent of MetroPCS, is leading a proxy battle against thedeal.
Paulson & Co has a 9.9 percent stake and Madison Dearbornowns about 8.3 percent of MetroPCS shares, according to the mostrecent public disclosures.
MetroPCS shares have slid more than 8 percent since Oct. 1,the day before reports emerged that MetroPCS and DeutscheTelekom were in talks. They closed at $10.53 on Wednesday, priorto the release of the ISS statement.
