U.K. mobile network operators T-Mobile and Orange are in negotiations to merge their U.K. operations into a 50/50 joint venture.

Between them they would claim 28 million subscribers and a 37 percent market share, creating a new market leader. The deal, if signed by the two and approved by regulators, would go into effect in the first half of 2010. Even then, the two brands would operate separately for a further 18 months, with a new brand not expected to launch until 2012, just in time for London’s hosting of the Olympics.

“Assuming the deal goes through without a hitch, it does realign the U.K. competitive landscape,” said Emeka Obiodu and Steven Hartley, senior analysts with advisory and consulting firm Ovum Ltd., in a research note. “To date the two separate operators have struggled to close the gap on Vodafone and O2. The combined entity would not only become the clear market leader, but the synergies (through network integration, marketing and distribution, and other efficiencies) are promised to be £620 million by 2014, thereby improving profitability immensely.”

The deal would give the mobile-only operator T-Mobile access to Orange’s fixed broadband assets, paving the way for integrated offers down the road.

For Vodafone, this merger would make it third in its domestic market. “However, given the recent coziness between Vodafone and BT, this might just become the prompt for Vodafone to tie-up with BT and take the initiative in its domestic market as an integrated telco,” said the analysts.

It should also be noted that T-Mobile has a network-sharing deal in place with 3, and the merger will create a certain amount of internecine asset-sharing relationships.

“The T-Mobile/Orange merger sets the stage for a total transformation of the UK mobile market and poses the question of the response from Vodafone, O2 and 3,” the analysts said. “Unsurprisingly, 3 will be the most affected as the merger cuts it adrift in the market. With a market share of less than 6 percent it would become too small to compete realistically and would have to reconsider its presence in the U.K., either by becoming an MVNO or exiting the market.”

Ovum expects regulators to approve the deal

“While the 37 percent market share of the combined Orange/T-Mobile business looks big, comparisons with Europe make it look reasonable,” Obiodu and Hartley wrote. “Market leaders in Belgium, France, Germany, Italy, the Netherlands, Spain and Portugal have similar shares. Indeed, regulators will look at a broader definition of dominance when approving the deal.”