Telefónica, the Spanish owner of O2, confirmed it is in discussion with Virgin Media owner Liberty Global over a possible merger deal.

However, it emphasised the businesses are in negotiation and they are unable to guarantee the move at this stage.

A statement read: “In relation to discussions with Liberty Global on a potential integration of their respective telecommunications businesses in the United Kingdom, Telefónica informs that 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.

“In the event of a satisfactory agreement on this potential transaction, Telefónica will communicate such information to the markets.”

If the merger were to go ahead, it would create one of the largest telecoms companies in the UK with a near 40 million customer base across mobile, broadband and pay TV, rivalling the likes of BT (which owns EE), and Sky.

In November, Virgin Mobile agreed a five-year deal with Vodafone UK enabling its three million mobile phone customers to be switched from the BT network to Vodafone.