The companies said they will cooperate in development of technology for mobile phones, providing services to multinational customers and other areas under the agreement signed Sunday.

Exploit the synergies

They also plan to exchange managers, the companies said.

"We are fully committed to the alliance and will exploit the synergies offered by this far-reaching cooperation to benefit our shareholders and customers alike," Telefonica chairman Cesar Alierta said in a statement.

The companies said they would buy US$1 billion worth of each other's shares based on the average closing price over the 30 trading days ending August 28.

They said Telefonica's stake in Unicom would rise to eight per cent, while Unicom will become a Telefonica shareholder for the first time with a stake of approximately 0.88 per cent.

Win-win situation

The Spanish company owned 5.5 per cent of China Netcom Ltd, which was merged into Unicom as part of a reorganisation last year.

"We are looking forward to enhancing the partnership and achieving a win-win situation for both parties," Unicom chairman Chang Xiaobing said in the statement.

Both Telefonica and Unicom operate mobile networks using the WCDMA standard.

Telefonica operates in 25 countries, primarily in Europe and Latin America, and says it has more than 264 million customers worldwide.

Unicom says it has 141 million mobile subscribers and 108 million fixed-line subscribers.

- AP