It’s a boost for Orange as it moves to merge with T-Mobile UK to create the UK’s biggest mobile operator. Reports had linked Deutsche Telekom-owned T-Mobile UK to a bid for the iPhone when O2’s exclusivity runs out; depending on to what extent the two telcos are allowed to merge, perhaps now it won’t need its own deal.

Orange now sells iPhone in 28 countries and territories; the company itself lost the exclusive rights to sell the iPhone in France last year after an anti-trust ruling.

It was perhaps telling that O2 made no mention of the iPhone is its Q109 earnings report. Telefonica (NYSE: TEF) Europe CEO Matthew Key was still optimistic about keeping it though: he told analysts Telefonica has exclusive iPhone contracts in UK, Spain and Ireland and referring to the relationship with Apple (NSDQ: AAPL) said: “They’re extremely happy with us and we’re extremely happy with them.”

But does the deal make good business sense for Orange? UK demand is still there for the iPhone, but Danish analysts Strand Consult recently questioned the wisdom of selling it, not least because rivals sellers can be locked into unprofitable price wars in territories where Apple moves to non-exclusivity

O2 retains exclusive rights to sell the Palm (NSDQ: PALM) Pre in the UK and will be hoping the product can somehow overcome Apple’s formidable marketing machine to win over affluent British consumers.

Update: O2 has responded to Orange’s announcement saying: “We always knew that iPhone exclusivity was for a limited period of time, but our relationship with Apple continues and will be an ongoing success.” The company claims over one million iPhone customers and says it is “becoming the home of smartphones” despite the exclusive contract loss.