Mobile phone giants Orange and T-Mobile today revealed plans to join forces in a tie-up which will create a new market leader in the UK.
France Telecom's Orange and Deutsche Telekom-owned T-Mobile - currently the UK's third and fourth largest operators respectively - will have 28.4 million customers between them and claim a 37% market share.
The firms, which are in exclusive talks over the merger, promised better coverage and improved customer services.
However, they warned there would be job losses among their combined 19,000 UK workforce.
There would be "efficiencies" across both businesses, including networks and IT, marketing and advertising, according to an Orange spokeswoman.
The deal, expected to be signed by the end of next month and completed in 2010, comes as mobile phone operators struggle in a highly competitive - and saturated - UK market.
Their tie-up will whittle down the number of major players further, while also relegating market leaders O2, owned by Spain's Telefonica, and Vodafone to second and third place.
Customers were told the merger would "bring substantial benefits".
However, customers will not see any change in branding for the first 18 months, with Orange and T-Mobile remaining separate while branding alternatives for the joint venture are reviewed.
France Telecom's chief financial officer Gervais Pellissier said: "By combining our operations in the UK, we anticipate the long-awaited consolidation in one of Europe's most competitive markets, thereby creating a well positioned player.
"This will reinforce fair competition and will provide strong benefits for our customers through improved coverage, quality of service and an enhanced capacity to develop new services and technologies."
The pair are now in "exclusive" talks over the 50/50 joint venture, which comes after Deutsche Telekom considered an outright sale of its embattled T-Mobile business in the UK.
It is thought that Vodafone and O2 were also interested in a deal.
T-Mobile was put up for sale earlier this year by its German parent after seeing three quarters of negative sales growth as it struggled in a fiercely competitive market.
New management were installed in May, headed by Richard Moat, in a bid to revive the business.
But a merger with Orange will help both firms take on the might of Vodafone and O2, with annual sales of £7.7bn (€8.8bn) and earnings of £1.7bn (€1.94bn), based on pro forma 2008 figures.
They also hope to make annual cost base savings of more than £445m (€508.66m) from 2014.
Ernest Doku, of mobile phone price comparison website Omio.com, said the tie-up made "simple business sense".
"A merger will give both companies a healthy market share and offer serious competition to O2 and Vodafone moving forward, placing them in a strong position to drive contract prices down for consumers and offer unrivalled handset choice," he said.
"While O2 and Vodafone have the money and industry clout to lure consumers with must-have handsets such as the iPhone, BlackBerry Storm and forthcoming Palm Pre, T-Mobile UK and Orange were both struggling to offer alternatives and lacked the muscle to secure headline-grabbing mobile deals," he added.
The merged company will be headed by Tom Alexander, chief executive of Orange UK, who will take on the same role, with Mr Moat of T-Mobile as chief operating officer.
Headquartered in Bristol, Orange employs 12,500 in the UK, while T-Mobile has a 6,500-strong UK workforce, with a head office in Hatfield, Hertfordshire.
Andy Kerr, deputy general secretary of the Communication Workers Union, said: "There has been nervousness for some time in large T-Mobile call centres in Greenock, Merthyr and Docksford (Sunderland) with months of rumours about the future of the company.
"If this proposed takeover of one mobile firm by a larger one goes ahead we think we will be looking at job losses and possibly site closures of both call centres and retail outlets in a rationalisation programme.
"Our main aim at this time is to protect workers from the inevitable drive for efficiencies which a takeover will bring.
"It is crucial that Orange makes commitments over job security and is honest with staff regarding the implications of this takeover. Staff motivation and retention will be key to a successful and smooth operation."