KPN said Telefonica Deutschland will pay 5 billion euros ($6.58 billion) to purchase E-Plus. In addition, KPN will receive a 17.6 percent stake in Telefonica Deutschland as part of the deal, it said.

The sale will create a fusion of the 3rd and 4th largest mobile telecommunications companies in Germany.

According to June figures from the German Federal Network Agency, E-Plus has 23.4 million customers and O2, which is a subsidiary of Telefonica Deutschland, 19.3 million customers.

Telekom subsidiary T-Mobile and Vodafone are the market leaders, with 36.6 million and 33.9 million customers respectively.

When the transaction is complete, Germany will have only three mobile phone companies with their own networks.

The announcement of the sale came as KPN said its second-quarter net profit had fallen to 108 million euros, down 68 per cent in comparison with the same period last year.

The loss was put down to tough market conditions for its mobile phone operations and a continuing decline in fixed-line services.

tj/kms (AP, dpa)