France Telecom says it is in exploratory talks to acquire Nordic telecommunications firm TeliaSonera.
Buying TeliaSonera would be France Telecom's biggest deal since it bought Orange for £27.8bn ($55.1bn) in 2000.
The firm stressed that negotiations had not yet started, but said the two companies were complementary.
The news hit France Telecom shares, which fell 2.01% to 19.46 euros in morning trading in Paris - making it the main stock index's biggest loser.
The firm's finance director, Gervais Pellissier, said France Telecom would probably pay for any deal of the size of TeliaSonera in a combination of cash and stock.
He said the company would stick to its cash dividend policy - a source of concern for investors - but warned it might miss debt targets.
France Telecom's European expansion in the 1990s resulted in a huge debt burden.
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