The Financial Times (FT) reports this morning that Vodafone is considering an offer to buy T-Mobile UK in a move that would transform the UK mobile market. The newspaper, which cites people familiar with the situation, says Vodafone is considering a joint-venture operation that could closely mirror its recent deal with 3 in Australia. Deutsche Telekom’s T-Mobile UK has an estimated enterprise value of between EUR3 billion to EUR4 billion but the operator has been one of the German firm’s most underperforming units in recent years. Deutsche Telekom has reportedly appointed investment bank JP Morgan to advise on the strategic options for the business. A partnership between the two operators would see the merged company become the UK’s largest mobile player by some distance with an estimated 45 percent market share, which could mean the deal is blocked by regulators. However, the FT suggests that the merger would ease pricing and margin pressures in the fiercely competitive UK market and notes that the UK is the only major European market with five mobile operators. 

The report adds that Vodafone’s Australian deal with 3 is evidence that Vittorio Colao, Vodafone’s chief executive since July last year, is keen on consolidation. “The most likely scenario would be a joint-venture between Vodafone UK and T-Mobile UK, the way Vodafone has recently done it in Australia with Hutchison,” commented Wireless Intelligence analyst Joss Gillet. “Vodafone UK has been reporting margins in decline; it could be challenging and even impossible for it to justify the acquisition of its distressed UK competitor.” Both Vodafone and Deutsche Telekom declined to comment on the story. According to Wireless Intelligence data for 1Q09, the UK market is led by Telefonica’s O2 with a 26.7 percent share, followed by Vodafone (24.4 percent), T-Mobile (21.8 percent), Orange (20.7 percent) and 3 (6.5 percent).