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* Q1 adj EBITDA 4.12 bln euros, in line with expectations
* Q1 revenues up 8 pct at 14.9 bln euros
* Says still sees 2014 adj EBITDA flat at 17.6 bln euros
* Shares down 0.8 pct, underperforming sector (Adds CEO, analyst comments, detail, shares, background)
By Harro Ten Wolde
FRANKFURT, May 8 (Reuters) - Deutsche Telekom revealed the cost of its successful drive to win customers inits main U.S. and German markets, as it posted a drop infirst-quarter core profit on Thursday.
The former German phone monopoly's fast-growing U.S.business, T-Mobile US, has caught the eye of Japan'sSoftbank, which is interested in merging the unit withits own U.S. telecoms arm, Sprint Corp.
Last week, T-Mobile US said it had added a record 2.4million new subscribers in the first quarter, more than its topthree rivals combined.
But Deutsche Telekom showed on Thursday its discounting cameat a cost, as it posted a 3.9 percent drop in quarterly earningsbefore interest, tax, depreciation and amortisation (EBITDA),including an already reported loss in the United States.
While the group reiterated its forecast for a stable EBITDAthis year, some analysts said that was starting to look tough.
"EBITDA of 17.6 billion euros might be a bit ambitious atthe end of the year," said Equinet Bank analyst Adrian Pehl.
Deutsche Telekom's shares were down 0.8 percent at 0915 GMT,lagging a firmer European telecom index.
The global telecoms industry is in the midst of a wave ofdealmaking, as companies look to take advantage of low interestrates to build economies of scale.
In its home base of Germany, Deutsche Telekom is up againstNo. 2 carrier Vodafone, which has bought KabelDeutschland to boost its broadband offering, while third andfourth-placed mobile groups Telefonica Deutschland andKPN's E-Plus are seeking to merge.
In the United States, it's the No.3 player Sprint looking tolink up with No.4 T-Mobile US to close the gap on leadersVerizon and AT&T.
However, regulators have taken a tough line on telecomsdeals in the past, fearing a reduction in competition coulddrive up prices for consumers. In 2011, U.S. regulators rejecteda merger between AT&T and T-Mobile on the grounds the marketneeded at least four major players.
Deutsche Telekom CEO Tim Hoettges reiterated on Thursday hewould be in favour of building a stronger third player in theU.S. market, but that regulators didn't seem to want this.
Hoettges, who took the helm on Jan. 1, has pushed for abigger market share in North America and said the strategy wasworking.
"Our success story in the United States continues. Thedecision to invest boldly in this market was right on the mark,"Deutsche Telekom said in a statement.
Robin Bienenstock, an analyst at Bernstein Research, saidDeutsche Telekom was in a "strong position", expecting Softbankto make a move for T-Mobile US. "At the very least investorsshould expect a very long regulatory process," she added.
Subscriber growth in both Germany and the U.S. businesshelped to drive an 8-percent rise in Deutsche Telekom'squarterly sales to 14.9 billion euros ($20.7 billion).
In Germany, it added 551,000 new subscribers with itshigh-speed fourth-generation mobile network, which is nowavailable to 74 percent of the German population. Mobile servicerevenues rose 0.2 percent. Rival Telefonica Deutschland on Thursday reported a 3.4-percent decline.
However, Deutsche Telekom's first-quarter group EBITDAexcluding special items, dropped to 4.12 billion euros, in linewith analysts' average forecast.
($1 = 0.7183 Euros) (Editing by Thomas Atkins, Maria Sheahan and Mark Potter)
