Rivals plan Nordic telecoms tie-up

Both firms are reckoned to be too small to prosper alone

Sonera, Finland's state-controlled telephone firm, is in merger talks with Swedish rival Telia, Finnish Prime Minister Paavo Lipponen has admitted.

The two firms have been the subject of repeated merger rumours over the past two years, as the European telecoms industry rapidly consolidates.

A merger would create a carrier with a market capitalisation of about $17bn (£12bn), a size more comparable to European peers such as British Telecom and Deutsche Telekom.

Sonera chief executive Harri Koponen initially refused to comment, but the firm has now confirmed that talks are in progress.

"It is too early to estimate any potential outcome of these discussions," it said, adding that it would make no further comment at this stage.

Excitement about the deal sent shares in Sonera soaring by 10% in early trade in Helsinki.

Behind closed doors

Late last week, Finnish state media reported that Sonera's future had been discussed in the Finnish government and the communications ministry, and that Telia was being lined up as a likely partner.

The news seemed to come as a shock to the firms.

On Sunday, Mr Koponen argued that no serious government move could be made without his knowledge, despite the fact that both firms are majority state owned.

"I think that I am still running the company and I think I know pretty much what is happening," he said.

Last year, merger talks between Telia, Sonera and Denmark's TDC collapsed over intractable differences concerning valuations.

Merger makes sense

A Telia-Sonera merger would be the first big deal in Europe for more than a year, as most firms have been licking their wounds in the wake of the collapse in hi-tech share prices.

Sonera's finances have been shaky in recent years, and it recently unveiled heavy losses for the last three months of 2001.

Telia, meanwhile, has been a strong performer and has little debt, but faces a challenge early next year, when overseas competitors launch third-generation mobile services in its home market.

Sonera has debts of about 3bn euros (£1.8bn; $2.6bn), mainly resulting from its purchase of a 3G licence in Germany.