Each company will hold 50 percent of Nokia Siemens Networks, with annual sales forecast at 16 billion euros ($20 billion dollars), and expected cost savings of 1.5 billion euros per year by 2010, a joint statement said.

Siemens chief executive Klaus Kleinfeld said the "combination creates a leading industry player with immediate strength, excellent potential for growth and well-positioned to improve future profitability."

The new group is to be based in Finland and run by Simon Beresford-Wylie, currently the boss of Nokia Networks.

A hefty deal

On Sunday, US press reports said the deal would be worth about 25 billion euros. It would place Nokia Siemens Networks behind Ericsson of Sweden and the group formed through a recent merger of Lucent and Alcatel, the papers wrote.

The merger reflects a trend towards consolidation in the telecommunications industry in the face of low-price competition from Asian firms. Nokia and Siemens hope to make major cost savings by cutting duplicated research and development costs and other expenses, the Wall Street Journal wrote.

The combination could be "particularly powerful in supplying the mobile-telephone industry," the newspaper said.

Both companies have previously shied away from global mergers.

A pragmatic look

Shortly before taking over as the new chief executive of Nokia, Olli-Pekka Kallasvuo hinted last month in an interview with the Financial Times that the world's biggest mobile phone manufacturer would likely pursue acquisitions and partnerships with its war chest of 9 billion euros.

"In a situation where the business environment is getting more complex, a pragmatic look at partnerships and acquisitions will be necessary," Kallasvuo told the Financial Times at the time.

"We are expanding from traditional mobile phone telephony. Now we are talking about the convergence of the Internet, mobility, IT and music."