* Former finance chief Tim Hoettges becomes CEO on Jan 1
* Hoettges faces operational, M&A challenges
* Change afoot in German market as rivals strengthen
* U.S. deal-making looms with DT's T-Mobile a target
By Harro Ten Wolde and Leila Abboud
FRANKFURT, Dec 31 (Reuters) - When Deutsche Telekom's newChief Executive Tim Hoettges takes office on Wednesday, arevival of mergers and acquisitions in the sector and adramatically changing competitive landscape in Germany will posehis biggest challenges.
Having negotiated key deals in the United States and Britainduring his four-year tenure as finance chief and havingpreviously turned around the German fixed-line business whileunder fire from cable rivals, the 51-year-old is no stranger tothe territory.
Hoettges will draw on such experience to decide how DeutscheTelekom, Europe's third-largest telco by sales,should navigate consolidation on both sides of the Atlantic andtake on a rejuvenated Vodafone in Germany.
Born in Solingen, a city in the prosperous eastern state ofNorth Rhine-Westphalia, Hoettges is said to be straightforward,traditional and intense, unlike his long-time friend andoutgoing CEO Rene Obermann, who is known for his easy charm.
"Hoettges is not known for schmoozing corporate colleaguesor politicians," said another banker who worked for him.
"He handles such relations in a cool and businesslike way.He is not the kind of person who is buddies with politicians andthe rich and beautiful of the world."
Hoettges treads a more adversarial path.
"Unlike some CEOs, he wants to be contradicted," saidanother banker who has worked with him. "He wants an intensediscussion and will challenge you, too. He's also like that innegotiations: clear goals, minimal compromises."
While he immerses himself in the details, he never forgetsthe broad strategic lines, the banker added.
The piano-playing running enthusiast also has a less severeside than his angular physique and bald pate might suggest, saythose who know him. Some recall the riverboat party to celebratehis 50th birthday, when Hoettges donned a wig and moustache togive guests a glimpse of what he looked like in his youth.
He and Obermann became close friends over the past decade asthey climbed the ranks of Deutsche Telekom together, evenbecoming neighbours after building houses on adjacent plots.
DIFFERENT HAND
Bankers and analysts do not expect Hoettges to suddenlyalter the strategy set by Obermann in recent years, whichconsisted of cleaning up overseas businesses including themoney-losing T-Mobile US, while defending its leadership inGermany by investing heavily in the network.
Nevertheless, as telecoms acquisitions gather pace, Hoettgescould soon be playing a very different hand to hispredecessors'.
In Europe, U.S. telco AT&T has been scouting foracquisitions, and if it bids for Vodafone as some analysts andbankers say it could, Deutsche Telekom and other European groupswould be forced to react against a formidable new player.
In the United States, third-placed mobile operator Sprint, which is backed by Japan's Softbank, has beenstudying a bid for Deutsche Telekom's T-Mobile US to bulk up.
That T-Mobile US is even of interest to Sprint andhas been poaching customers from larger rivals in recentquarters can in part be credited to Hoettges, who wasinstrumental in negotiating deals and a turnaround for the unit.
It all began when AT&T's $39 billion bid for T-Mobile in2011 fell apart because of regulatory opposition. Fortunately,Hoettges and others had insisted on a big break-up fee if thedeal with AT&T fell through, which included cash and mobilespectrum worth $6 billion.
The package, especially the spectrum, turned out to beparticularly useful to T-Mobile, enabling its launch ofsuperfast mobile broadband services known as 4G. "Tim knew thetechnology that the team was negotiating for," said a banker.
The banker said T-Mobile was now well positioned in theUnited States in the event of further consolidation.
"Hoettges created a cookie jar in the U.S. which willprovide cash in case of a disposal or a bargaining chip, howeverthe consolidation trend goes," the banker said.
HARDBALL
Gervais Pellissier, chief financial officer at Orange, dealt head to head with Hoettges in negotiations tomerge their British mobile businesses in 2010.
"He is tough in negotiations but always tries to understandwhere the other person is coming from," said Pellissier.
During a testy meeting over whether to kill the Orange andT-Mobile brands in Britain, Hoettges sensed that the two sideswere at an impasse and suggested everyone take a break for abeer. "I think he knew everything was about to descend into afight, so he cut it off. He called me a few hours later and wewere able to make progress," said Pellissier.
The future of that venture, now called EE, will be among thestrategic decisions Hottges has to take. The owners have saidthey will consider floating a minority stake in the operator,Britain's largest, valued at about 10 billion euros, though theyhave pushed back the final decision as EE won 4G customers inrecent quarters.
Hoettges will also have to keep a close eye on the Germanmarket, which generates about half of group operating profit.
Vodafone, which disputes the top mobile spot with DeutscheTelekom, has bought Kabel Deutschland to boost its broadbandoffering, while third and fourth-placed mobile groups TelefonicaDeutschland and KPN's E-Plus are seeking tomerge. Both deals could force operators to adopt new commercialstrategies to win customers, and mobile prices have already comedown in recent quarters.
Hoettges has shown he can play hard ball. As head of theGerman fixed business in 2007 he held out during a month-longstrike over a plan to outsource some workers.
Backing down is not something he takes lightly.
One union official said Hoettges reluctantly agreed a dealto raise German wages in 2009 but was never entirely reconciledto the defeat.
"It still irritates him even today. He is very persistent."
Vodafone (VOD)