British mobile phone giant Vodafone's Indian unit will merge with Idea Cellular to create India's largest telecoms operator, the firms said Monday, as they combine to fight the rise of Reliance Jio.

“Vodafone Group Plc and Idea Cellular today announced that they have reached an agreement to combine their operations in India,” they said in a statement to the Bombay Stock Exchange (BSE).

“The combined company would become the leading communications provider in India with almost 400 million customers, 35 per cent customer market share and 41 per cent revenue market share,” the statement added.

The confirmation ended months of speculation that the two operators were ready to sign a deal to help fend off Reliance Jio, whose recent arrival has shaken up India's ultra-competitive mobile network market. Reliance Jio, which began operations last year, is owned by India's richest man Mukesh Ambani.

The 4G Jio network launched in September with an audacious free service for the rest of 2016, followed by vastly cheaper data plans and free voice calls for life.

It forced rivals to dramatically slash their tariffs and left them scrambling to match the deep pockets of Jio, which is backed by India's hugely wealthy energy-to-chemicals conglomerate Reliance Industries.

Shares in Idea rose almost four per cent in Mumbai following announcement of the deal, which will see the combined company overtake Bharti Airtel as India's largest telecoms operator.

Vodafone will hold 45.1 per cent of the merged entity while Idea will hold 26 per cent. The agreement excludes Vodafone's 42 per cent stake in Indus Towers.

The merged firm will be worth $23.2 billion, based on the combined enterprise value of $12.4bn for Vodafone India and $10.8bn for Idea Cellular, according to Bloomberg News.

The companies will be able to nominate three directors each, the statement said.

Global brokerage firm CLSA has estimated that the Vodafone-Idea tie-up would command a revenue market share of 43 per cent by the start of the 2019-20 financial year, ahead of Airtel on 33 per cent. Jio would have 13 per cent.

“The combination of Vodafone India and Idea will create a new champion of Digital India founded with a long-term commitment and vision to bring world class 4G networks to villages, towns and cities across India,” Vodafone Group chief executive Vittorio Colao said in the statement.