The mobile operator O2 could be set up to merge with the broadband giant Virgin Media to create one of the largest entertainment and telecommunications companies in the country.
A link between two major players in Britain's telecommunications and media sector would create a great rival for BT.
The Spanish company Telefonica, owner of O2, confirmed that it was in negotiations with the owner of Virgin Liberty Global.
The company stressed that negotiations were ongoing and there was no guarantee that they would reach an agreement.
"The process initiated by both parties is in a negotiation phase, being unable to guarantee, to date, neither the precise terms nor the probability of its success," said Telefonica.
Virgin Media declined to comment.
O2, which provides the network for Tesco Mobile, Giffgaff and Sky Mobile, is the UK's largest telephone company with around 34 million users.
Virgin has around six million broadband and cable TV users and three million more mobile users.
A link between the two would increase pressure on BT, which has the UK's second largest mobile phone network.
BT has 28 million mobile, TV and broadband customers across the country. It also provides services to one million companies.
Telefonica tried to sell O2 to Three's owner, CK Hutchison, for £ 10.3 billion in 2015. However, that deal was blocked by the European Commission for fears that it would leave only three of the UK's leading mobile operators. .
But telecommunications analyst Paolo Pescatore, who works for PP Foresight, does not think that an agreement between O2 and Virgin should face similar obstacles.
He said that Virgin Media mainly provides cable services, such as broadband and TV, while O2 focuses on mobile devices.
"It is very complementary," he said.
Describing how a bond could be between the two companies, Pescatore said: "If you are an O2 customer, you will be able to purchase more than just a mobile device.
"If you are a Virgin Media customer, the vision - ultimately - will be to be able to buy everything in one place with a single invoice, which is not the case today."
But fellow telecommunications analyst Kester Mann, who works at CCS Insight, says customers may need a "new mindset" if mobile, TV and broadband packages are gaining popularity.
"The UK has been a very slow market compared to others in Europe for the transition to this idea of packaged and bundled services," he said. "Customers didn't request these types or services."
However, companies like them. "If they manage to block customers on landline and mobile networks, it is obviously much more difficult to extract yourself," Mann said.
