Deutsche Telekom confirmed today that it is negotiating with MetroPCS in the hopes of combining the prepaid provider with T-Mobile USA. Shares of MetroPCS shot up as much as 26 percent on the news, matching their 14-month high. T-Mobile has continued to struggle following AT&T’s failed bid to take it over, and Deutsche Telekom is reportedly looking to combine the two operators and take it public, taking a majority stake in the combine operator.

A marriage of T-Mobile and MetroPCS makes sense on several levels, as Sascha Segan discusses here. It would add scale, of course, which T-Mobile desperately needs as it competes with the three larger tier-one carriers. Also, the network barriers that once might have prevented a deal are being removed because MetroPCS is moving toward an all-LTE network. And both carriers are targeting budget-conscious consumers with affordable nationwide 4G services (although T-Mobile’s offering is HSPA+ rather than LTE).

The heart of this proposed deal is spectrum, however. T-Mobile bulked up its portfolio when it took a chunk of AT&T’s airwaves as part of a breakup fee, but it still doesn’t have the spectrum needed to build out a solid LTE network. A tie-up with MetroPCS probably won’t be enough to solve that problem by itself, but it would help immensely in an era where spectrum is the coin of the wireless realm.