Nokia says it has agreed to buy smaller French rival Alcatel-Lucent in a €15.6bn (£11.2bn) takeover deal.
Under the all-share deal, Alcatel-Lucent shareholders will own 33.5% of the new combined firm, and Nokia shareholders 66.5%.
Both firms said their boards had agreed the takeover and they expected it to go through in the first half of next year.
The merger will form a European telecoms equipment group worth more than €40bn (£29bn).
Nokia’s chief executive, Rajeev Suri, said the firms’ complementary technologies would give them “the scale to lead in every area in which we choose to compete”.
“I firmly believe that this is the right deal, with the right logic, at the right time,” he added.
The two firms are currently among the weakest players in the telecoms equipment industry. However, the combined firm will have a market share of 35%, making it second only to Swedish rival Ericsson, which has 40%, according to Bernstein Research.
The firms expect the merger to cut operating costs by €900m by 2019, but Nokia said it would not cut jobs beyond what Alcatel had already planned.
“No job cuts” in France was the condition under which the French government said on Tuesday that it would back the deal.
One year ago, Nokia completed a deal to sell its handset business to Microsoft after struggling to compete with rivals Apple and Samsung in the smartphones market.