Deutsche Telekom and France Telecom are reportedly holding talks on a merger of their UK units- T-Mobile UK and Orange to create Britain’s biggest cellular operator to better able to compete with its two big rivals- Vodafone UK and Telefónica's O2.

As a part of the arrangement, a 50-50 joint venture will be formed by the end of October, clinching 37 percent of the UK's mobile phone user base or 28.4 million subscriptions.

Deutsche Telekom will put its business into the venture free of any debt, while France Telecom would transfer £1.25bn ($2.07bn) of intra-group debt into the venture to compensate for T-Mobile UK's lower asset valuation, said the companies.

In addition, France Telecom will also get £625 million in cash in a one-off payment from the venture. Successively, France Telecom will refinance this deal by loaning a similar amount from its German parent.

In terms of the staffing of the new board, both France Telecom and Deutsche Telekom will provide equal participation, with Tom Alexander, Orange UK chief executive, retaining his title and Richard Moat, T-Mobile's UK head, becoming chief operating officer.

However, the two companies would continue to operate under separate brands until the shareholders signed off on any new strategy.