Germany's Deutsche Telekom and France Telecom today announced their plans to merge their UK operations T-Mobile UK and Orange UK respectively, into a new 50:50 joint venture company, which would put the combined company as the top mobile phone operator in the UK.

The merger, which is expected by the end of October, will see the new company become the UK's leading mobile operator with a combined customer base of around 28.4 million and a market share of around 37 per cent, ahead of their largest rivals - Spanish group Telefonica's 27 per cent and Vodafone's 25 per cent.

Both Telefonica, operating in the UK under the brand 02 and Vodafone had reportedly made offers of around £3.5 billion for T-Mobile, which was below the latest book value of £4.5 billion and also below what Deutsche Telekom was expecting.

The joint venture agreement, which is expected to be signed by the end of next month and completed in 2010, comes as at a time when there is fierce competition in Europe's most competitive and saturated mobile market-the UK.

Both mobile operators will run their operations independently for 18 months after completion of the merger, while the new company management will look for a new brand for the joint venture.

Consumers in the UK will benefit by the expanded network coverage, enhanced network quality for both 2G and 3G services, and a larger network of shops and improved customer services, both companies said in a statement.

The merger also means the two mobile operators are better able to invest in innovative new services and to exploit new technologies. The new enlarged business will also be able to compete more effectively with the other two large mobile operators in the market.

The joint venture will invest £600 to £800 million in integration costs over the period from 2010 to 2014. Those costs would primarily relate to the decommissioning of mobile sites, the rationalisation of the network of retail stores and the streamlining of operations.

Annual sales of the combined mobile operators, based on 2008 figures, could reach £7.7 billion with earnings of £1.7 billion.

The merger and integration of T-Mobile UK with Orange UK should generate synergies of £445 million from 2014 onwards, the companies said. However, the companies warned that the merger would lead to job losses among their combined 19,000 UK workforce.

The new company will be headed by Tom Alexander, currently CEO of Orange UK as CEO and Richard Moat, currently CEO of T-Mobile UK will be the COO.

Timotheus Höttges, CFO of Deutsche Telekom, said, ''We will become market leader - our customers will benefit in many ways, for example from the best mobile broadband offer in Britain. In the second-biggest market in Europe, which is undoubtedly one of the toughest and most competitive, we are giving T-Mobile UK a clear and strong future.''

Gervais Pellissier, CFO of France Telecom said, ''By combining our operations in the UK, we anticipate the long-awaited consolidation in one of Europe's most competitive markets, thereby creating a well positioned player. This will reinforce fair competition and will provide strong benefits for our customers through improved coverage, quality of service and an enhanced capacity to develop new services and technologies.''

For the first half of 2009, Deutsche Telekom posted a loss of €600 million down from €1.3 billion profit in the same period last year. T-Mobile's UK division wrote off €1.8 billion and lost 100,000 customers during the period.

Orange had said that sales for the first half of 2009 were down by 2.6 per cent compared to last year, at €2.54 billion.

Although the UK mobile market is one of the most competitive in Europe, the merger may attract the attention of regulators on concerns that consumers may be hit as prices may go up, according to analysts.