The disclosure comes after days of speculation over whether BT would opt to bid for O2 or rival EE, which is owned by Deutsche Telekom and Orange, as part of its long-awaited return to the mobile phone sector.
BT will begin several weeks of talks over the potential cash and shares deal worth £12.5bn, a move which is set to result in Deutsche Telekom holding a 12 per cent stake in BT and Orange taking a 4 per cent stake.
O2, formerly known as BT Cellnet, was spun off from BT in 2001 before being bought by Spain’s Telefonica for £17.7bn in 2005.
Telecoms operators are increasingly focused on moving into “quad play” - bundling together landline, mobile, internet and TV services for customers.
BT said the acquisition of EE, which has 24.5m customers, would give it ownership of the UK’s most advanced 4G network, providing it with greater control in terms of future investment and product innovation.
In July, BT took its first big step back into the mobile phone market as it launched a new business service aimed at delivering fixed line and mobile calls to the same handset.
It is already planning to launch a mobile phone business for the wider public by the end of the current financial year.
BT is also engaged in a TV football war with Sky, as it tries to lure broadband customers with free Premier League broadcasts.