Cable & Wireless (C&W) and Energis are reportedly holding behind-the-scenes talks that could lead to the eventual merger of the two UK telcos.
The Independent reports that talks are at an "advanced stage". If C&W does go-ahead and complete the take-over it would create a telecoms company with sales of around £2.3bn.
Through its acquisition last year of local loop unbundling ISP Bulldog, C&W is well poised to attack BT's established retail market by providing voice and broadband services direct to customers.
Bringing Energis on board would also give C&W a number of blue chip corporate clients including the BBC, IBM and Tesco.
Earlier this week France Telecom was rumoured to be preparing to splash out £4bn to take over C&W. The Sunday Telegraph quoted one unnamed executive as saying: "There is absolutely no doubt that France Telecom is looking at making a bid for Cable & Wireless."
However, France Telecom denied the story saying it simply isn't true. It didn't even bother to take the standard PR line of "we don't comment on rumour and specuation"
Instead a spokeswoman for FT told us: "France Telecom formally denies this information." ®