Vodafone is in talks with Three about merging their companies in the UK.
This means that the third and fourth largest mobile networks, respectively, combine to create a company with 27 million customers, larger than currently leading companies BT, EE and Virgin Media O2.
The company says it will accelerate the spread of 5G networks and broadband in rural areas.
As any deal will be examined by the Competition and Markets Authority (CMA).
Reports indicate that the two companies hope to seal a deal by the end of the year.
Vodafone said it would own 51 percent and Hutchison - which operates three - 49 percent under the deal being discussed.
chances of approval?
Regulators have previously opposed mergers that would reduce the number of networks in the UK.
However, Vodafone pointed to a recent report by telecom regulator Ofcom that may indicate a new approach.
It found that in recent years both Vodafone and Three have achieved returns on investments that were less than the cost of the capital they used.
But James Robinson, of the Association of Communications Market Analysts, said there were still hurdles to overcome for the combined company.
“While parties may view consolidation as a way to improve returns and unlock shareholder value, we expect the CMA to be keen to guard against the risks of rising consumer prices – particularly in light of the current cost-of-living crisis,” he said.
He noted that the combined company may need to make "legally binding concessions" to reassure regulators.
"Motivation Scale"
Ben Wood, an analyst at CCS Insight, told the BBC the potential partnership had been expected.
"The two companies did not hide their interest in unification," he said.
“The main driver for joining forces is scale. In telecommunications, the most successful companies tend to be the largest; leverage will provide many synergies and cost-saving opportunities.
“With the status quo, it is hard to see any of the operators growing enough to come close to challenging BT and Virgin Media O2 for volume in the UK.
The pairing between Vodafone and Three is just one potential link in the UK.
Other deals including Virgin Media O2, TalkTalk and Sky have been speculated in recent months.
“By bringing together our businesses, Vodafone UK and Three UK will gain the scale needed to be able to accelerate the rollout of full 5G in the UK, extending broadband connectivity to rural communities and small businesses,” Vodafone said in an update to shareholders.
She added: "The necessary conditions must be nurtured to ensure thriving competition in the market, otherwise the UK is in danger of missing out on the opportunity to become a leader in 5G."
Ofcom said it did not have a firm position regarding market consolidation.
"Our view is that potential mergers in telecom markets need to be assessed on a case-by-case basis, not on a hypothetical view of the appropriate number of competitors," it said in its latest report.
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