Bidding war looms for T-Mobile

Vodafone is considering a bid to buy T-Mobile UK

A potential bidding war for mobile phone operator T-Mobile was in prospect after reports said O2 owner Telefonica was eyeing the business.

The Spanish company's interest in T-Mobile would throw down the gauntlet to mobile phone giant Vodafone, which is also weighing up a possible bid, the Financial Times said.

Telefonica is said to be concerned that O2 would lose its market-leading position in the UK if Vodafone goes ahead with an offer.

Telefonica, which was unavailable for comment, currently has 27% of the UK market through O2.

Vodafone is the second largest player with 25% but this would be bumped up to 40% if it bought T-Mobile, which is the UK's fourth biggest mobile phone operator.

Sources close to Telefonica told the newspaper that the company had not made a decision about whether to go ahead and preparation was at an early stage.

T-Mobile is owned by Deutsche Telekom and valued at around £3 billion by analysts. But the German company is said to be looking at a sale after years of under-performance and has appointed JP Morgan as an adviser on options for the business.

T-Mobile, which has around 15% of the UK market, has had three quarters of negative sales growth amid tough conditions for mobile phone operators as they battle against the recession and stiff competition.

The FT also reported that France Telecom was weighing up a possible joint venture in the UK with T-Mobile and Orange, the UK's third biggest company.

This tie-up would also have a market-leading position in the UK if it came to fruition.