Virgin Media and O2 have started talks for a multi-million merger in a move that will affect both broadband and mobile customers.
A potential tie-up could create one of the UK's largest entertainment and telecoms firms, rivalling BT, which has more than 28million subscribers.
Spanish firm Telefonica, which owns O2, confirmed that it was in talks with Liberty Global, which has owned Virgin Media since 2013.
The company said that the negotiations were ongoing and there was no guarantee they would reach a agreement.
"The process initiated by both parties is in a negotiation phase, not being able to guarantee, to this date, neither the precise terms nor the probability of its success," Telefonica said.
O2, which provides the network for Tesco Mobile, Giffgaff and Sky Mobile, is the UK's largest phone company with around 34million users.
Virgin has about 6million broadband and cable TV customers and another 3million mobile users.
A tie-up between the two would create a bigger rival to BT - which has 28 million mobile, TV and broadband customers across the country. It also provides services to a million businesses.
Telefonica tried to sell O2 to the owner of Three, CK Hutchison, for £10.3billion in 2015. However, the deal was blocked by the European Commission over concerns that it would have left just three major mobile phone operators in the UK.
But telecoms analyst Paolo Pescatore, who works for PP Foresight, does not think a deal between O2 and Virgin would face similar hurdles.
He said Virgin Media mainly provided services through cable, such as broadband and TV, whereas O2 focuses on mobile.
"It's very much complementary," he said.
Describing what a tie-up between the two companies could look like, Pescatore added: "If you're an O2 customer, you'll be able to be able to buy more than just mobile.
"If you're a Virgin Media customer, the vision - ultimately - will be that you can buy everything in one place with one bill, which isn't the case today."
Billionaire John Malone, who owns Liberty Global also owns a 10% stake in ITV.
The talks will raise speculation about whether Liberty may be open to including ITV in the deal, as the share price of the broadcaster of shows including The Chase and Coronation Street has hit a 10-year low amid the fall in advertising sales due to coronavirus.
