What do you get when you mix pink and orange? Deutsche Telekom (NYSE: DT) has sorted the future of its troublesome UK mobile unit T-Mobile by agreeing to wrap it in to a 50/50 JV with France Telecom’s Orange UK, making Britain’s largest network.

The pair, in their joint announcement, say customers will get better network coverage, better quality 2G and 3G services and better customer service through an expanded number of stores

They also say they will be “in a better position to invest in innovative new services and to exploit new technologies” and better able to compete against O2 and Vodafone (NYSE: VOD). “By integrating Orange’s broadband activities, the joint venture will also have the capabilities to offer convergent solutions to its customers in the future.”

Orange UK chief Tom Alexander will lead the JV, new T-Mobile UK CEO Richard Moat will be COO. The combined entity will command 37 percent of UK mobile subs (28.4 million) and will have revenues of €9.4 billion (£7.7 billion), the pair say in the announcement. Each brand name will remain separate for 18 months but the JV “will review branding alternatives” for use after that time.

T-Mobile UK’s performance, and its dealings in pounds rather than euros, had been draining parent Deutsche Telekom. As we reported last month, the German group swung to a January-to-June loss of €600 million, from a €1.3 billion profit in the same period last year, after writing off €1.8 billion from the UK carrier. While all DT’s other countries added customers in the last three months, T-Mobile UK lost 100,000, now standing at 16.6 million. UK Q2 income is down 12.8 percent from last year to €836 million.

Orange, once considered mightier but regarded a low-tech player that’s trying to retain customers with consumer voucher offers, reported UK January-to-June sales down 2.6 percent from last year to €2.54 billion.

The pair are eyeing synergies of over €4.0 billion (£3.5 billion), primarily from “large-scale site rationalisation” of IT and network facilities and saving on marketing and distribution under a single brand name. But integration of operating and capital expenses is expected to cost up to €1.42 billion over 2010 to 2014. The JV will also open with debt of £1.25 billion, thanks to loans of £625 million from each of its parents.

BBC News: “A joint venture allows the German firm to avoid the write downs it could face if forced to sell T-Mobile UK for less than it hoped. Meanwhile, for France Telecom (NYSE: FTE), the deal it is a way to strengthen its position in the UK market without paying cash or taking on vastly more debt.” The proposal will now go to shareholders and will require competition clearance.

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