A fierce bidding battle has broken out for T-Mobile, the UK mobile business owned by Germany's Deutsche Telekom, with Orange going head-to-head with Vodafone for the operator.

City sources said that Orange, the country's third-biggest mobile phone operator, is in advanced talks with the underperforming German business and that Vodafone was trying to gatecrash the deal.

Vodafone, the country's second-biggest mobile operator, revealed yesterday that it had made a preliminary approach to the German group.

The deal under discussion is said to allow Deutsche Telekom some participation in the upside, possibly by injecting T-Mobile UK into some kind of joint venture with Orange.

The two companies are said to have already costed the deal and identified 'synergy benefits' of between €4billion and €6billion.

One person close to the situation said: "Both Vodafone and Orange have lodged bids for T-Mobile but it is not a forced seller. The business is not in a crisis situation and it is holding out for the offer that it wants."

The rumoured price-tag for T-Mobile is around £3 billion.

Earlier this month Orange sought to fend off speculation about its UK ambitions by denying it had lodged a bid for T-Mobile. A spokesman for France Telecom, its owner, said then: "We have made no offer for T-Mobile and.. we have not been asked to make an offer."

Yesterday a spokesman again denied the group had any interest in T-Mobile. She said: "Orange has made no offer to acquire T-Mobile UK and has no interest in making such an offer."

Mobile phone analysts say intense pricing pressure and fierce competition has left the UK market ripe for consolidation. But regulators are likely to intensely scrutinise any deal between the major five players because of the concentration of power it would create.

Vodafone would enjoy a 40 per cent market share if it tied-up with T-Mobile.

Any tie-up is expected to be looked over by regulators in Brussels as well as by the UK competition authorities.

The mobile phone companies argue that even if a deal was pulled-off the UK market would remain competitive with four major players and dozens of offerings from Tesco and other retailers who do not own their own networks.

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