t mobile blocks truphone 28 300x240 T Mobile UK reportedly to merge with Orange to form UKs largest mobile companyThe Dow Jones and WSJ are reporting that Deutsche Telekom, T-mobile’s parent company, and France Telecom, Orange’s parent company, have agreed a deal that will see T-Mobile merge with Orange to create the UK’s largest telephone company.

The 50-50 venture will see Britain’s market leader O2 service lose its number one position, and the newly formed independent company taking 30 million subscribers and 38 percent of the U.K. market.

Earlier today, the Financial Times reported that Vodafone and Telefonica SA (O2’s parent company) were in the running to acquire T-Mobile UK for about £4 billion (US$6.6 billion). However, the Guardian reports that T-Mobile UK’s management preference is for a merger with Orange – as the cash bids from Vodafone and Telefonica SA are lower than its owner Deutsche Telekom had been expecting.

orange logosvg 300x300 T Mobile UK reportedly to merge with Orange to form UKs largest mobile companyT-Mobile U.K. has been widely considered to be on its last legs after Deutsche Telekom CEO Rene Obermann stressed the need for consolidation in Europe in May.

The U.K. market is enormously competitive and up until now, lead by O2, but also includes Vodafone, T-Mobile and 3. If confirmed, the deal will catch the attention of the U.K. Office of Fair Trade who are to get involved in any transaction that takes a companies market share past 25%.

The deal would also force the UK government to rethink its plans for rolling out reasonably fast broadband to everyone in Britain by 2012 reports The Guardian. That plan, set out in June’s Digital Britain report, aims to get the mobile phone companies to agree to share out of their wireless spectrum.