The sale paves the way for a stock market flotation of Virgin Mobile

The Deutsche-Telekom arm will surrender its Virgin Mobile holding to Virgin Group, ending a long-running legal row between the two partners.

In return, T-Mobile will secure 25% of the proceeds if Virgin Mobile floats within the next two and a half years.

Industry experts reckon Virgin Mobile could be valued at as much as �1bn.

Virgin's entrepreneur boss Richard Branson has been keen to prepare Virgin Mobile, the UK's fifth-largest mobile phone group, for a stock market debut.

Bitter row

Deutsche Telekom's stake sale brings to an end a bitter battle over the amount of money T-Mobile paid Virgin Mobile for marketing support.

T-Mobile launched a court case against both Virgin and Virgin Mobile in 2002 with the aim of terminating their joint venture.

Virgin counter-sued, accusing T-Mobile of not honouring the terms and conditions of their partnership, which, it claimed, restricted Virgin Mobile's ability to offer customers more advanced mobile data services.

T-Mobile is now freed from paying monthly "marketing support" fees to Virgin Mobile.

Now their differences have been resolved, the two partners have agreed to a new telecoms supply contract running for a minimum of 10 years with "enhanced commercial terms for both parties".

Virgin Group chairman Richard Branson said: "This is an exciting beginning to 2004 for Virgin Mobile - and it's going to get even better."