BT's takeover talks with EE confirmed by Orange and Deutsche Telekom

Germany's Deutsche Telekom and France's Orange have confirmed they are in talks about selling their UK EE mobile phone network to BT.

BT confirmed on Monday that it was in discussions to buy the O2 mobile network from Spain's Telefonica, as it looked to re-enter the mobile market, as well as a second rival operator.

BT had already planned to re-enter the UK mobile market in 2015 with its own consumer network, based on a wholesale agreement with EE, which holds a third of the British mobile market and has the widest deployment of the new 4G mobile broadband services.

But on Wednesday Deutsche Telekom and Orange admitted they were now in "exploratory discussions" with BT, with analysts calculating EE could potential cost BT roughly £10bn.

A statement from the pair said they "regularly analyse the development of the market in which EE operates, evaluating various strategic options which have the potential to create value for EE's shareholders and strengthen the market position of EE".

"As one of these options, Deutsche Telekom AG and Orange SA are in exploratory discussions with BT, although it is too early to state whether any transaction may occur," they added.

It was estimated on Tuesday that BT could offer £5bn cash plus around £3bn-4bn in shares to buy O2 from Telefonica, with the UK fixed-line telecoms group offering a 20% stake in its share capital for the company it originally spun off in 2001.

Numerous other rumours surround the sector, including that Vodafone may acquire TalkTalk, Vodafone may merge with Sky, Vodafone may merge with Liberty Global, Sky may buy a UK mobile operator.

As broker Charles Stanley said these "are not new ideas, but are being resuscitated".

Analyst Tom Gidley-Kitchin said: "BT can play off O2 against EE and, in relation to both of them it has a satisfactory base case strategy of simply building its own.

"It is financially strong and could offer a share consideration – market valuations imply Telefonica, O2’s owner, ending up with 20% or more of an enlarged BT, or less if the offer was partly in cash. A share offer could provide upside to the vendor in exchange for a sub-optimal price.

"BT is in a position to drive a hard bargain and we believe it will (and, if not now, maybe later) – it is significant that the BT statement said that it had been approached, rather than having made the approach, and O2 and EE’s positions may deteriorate with time.

"If the regulators permit this, we would expect a deal to proceed."