PARIS - France Telecom and Swiss rival Sunrise have agreed to merge their Swiss telecoms business into a unit that will be majority owned by France Telecom, to create a larger rival to market leader SwissCom .

France Telecom will pay $3.11 billion to Denmark's TDC , owner of Sunrise, and will own 75 percent of the new combination, it said on Wednesday.

France Telecom's Orange mobile phone business and Sunrise combined will have about 38 percent of the Swiss mobile telephony market and 13 percent of fixed broadband connections.

In a September interview with Reuters, France Telecom's finance director said the two players were competing against each other rather than "attacking the big guy" SwissCom.

The new combination, to be headed by the chief executive of Orange Switzerland Thomas Sieber, could generate synergies with an estimated net present value of $4.34 billion TDC, controlled by private equity firms reported to be preparing an offering of the firm's stock, said it would have the right to sell its stake in the merged unit two years after the closing or exit through an IPO three years after the close.

TDC also said it would take a fourth-quarter impairment charge of about $1.2 billion on the deal, but the transaction did not alter its outlook for 2009.