LONDON (AP) — Deutsche Telekom AG and France Telecom SA said yesterday they intend to combine their British mobile phone units — shaking up the country's intensely competitive market and forming the country's biggest mobile operator.

Deutsche Telekom said it has entered exclusive negotiations on combining its struggling British unit T-Mobile UK with France Telecom's Orange UK in a 50-50 joint venture.

The tie-up could benefit all operators in Britain's already crowded mobile telecommunications sector by reducing the pressure to cut prices, though mergers inevitably will mean job losses. "This is another sign that we may be moving into a period of sustained M&A activity as firms look to realise cost savings through consolidation," said Mark Priest, a trader at ETX Capital in London.

The announcement follows reports that Telefonica of Spain, owner of current UK market leader O2, and No. 2 Vodafone Group PLC had made informal offers of about £4 billion ($6.5 billion) for T-Mobile.

The combined company would have a customer base of 28.4 million mobile phone users, or about 37 percent of UK mobile subscribers at the end of 2008.

That would overtake O2, which has a 27 percent share of the British market. Vodafone is second with 25 percent. Orange has 22 percent, T-Mobile 15 percent and Hutchison Whampoa's 3 has 8 percent.

The market reacted positively: France Telecom shares were up 5.2 percent at euro18.77, Deutsche Telekom rose 2.6 percent to euro9.64, and Vodafone gained 2.2 percent to 137.45 pence.

Jonathan Groocock, analyst at Investec Securities, said a deal could benefit the entire British mobile sector.

"The final outcome would be improved market returns for all parties as margins could stabilise," Groocock said in a research note on Monday.