T-Mobile and Orange are in talks to merge UK operations potentially creating a company with 37 per cent of the UK mobile market and a combined 28.4 million customers.

Deutsche Telekom, parent company to T-Mobile, confirmed the exclusive talks have begun between the two mobile phone operators. The deal, which could be signed by November, would "bring substantial benefits to UK customers" and that "efficiencies" could be made across both businesses according to reports.

T-Mobile is the fourth-largest mobile operator in the UK, with a 15 per cent share of the market, while O2 has a 27 per cent share, followed by Vodafone with 25 per cent and Orange with 22 per cent.

Both T-Mobile and Orange and would remain separate for the first 18 months while branding was accessed.

Recently T-Mobile has been offering customers contract-free Apple iPhones in a bid to prevent churn and ensure high spending users stay with them. Stories claim that T-Mobile is offering up to a 150 iPhone handsets a week to customers who threaten to leave or demand a better deal.

Both T-Mobile and Orange are rumoured to be potential partners for the iPhone after 9 October 2009, when reports suggest O2 will lose exclusivity in the UK to supply the phone. O2 has the rights to sell the device until 2012, but its period as exclusive seller is only for two years.

A company with a combined 37 per cent of the UK mobile market is likely to be seen as a valuable partner for Apple.

Meanwhile in October, T-Mobile will start selling the UK's first pay-as-you-go Google Android phone. The £179.99 T-Mobile Pulse, made by Huawei will offer Internet access for £5 a month or £1 per day.