Nokia and Siemens are to merge their mobile and fixed-line phone network equipment businesses to create one of the world's biggest network firms
Both companies will have a 50% stake in the infrastructure company, to be based in Nokia's home country of Finland.
The firms predict annual sales of 16bn euros and cost savings of 1.5bn euros a year by 2010.
The move follows a tie-up between French phone equipment firm Alcatel and US company Lucent Technologies.
The new business, made up of Siemens' networks business group and Nokia's carrier-related operations, will be called Nokia Siemens Networks.
In a statement the firms said the company would have "a world-class fixed-mobile convergence capability, a complementary global base of customers, a deep presence in both developed and emerging markets and one of the industry's largest and most experienced service organisations".
It is to be run by Simon Beresford-Wylie, currently the boss of Nokia Networks.
The Wall Street Journal put the value of the deal, due to be completed by January 1 next year, at about 25bn euros.
There has been a move towards consolidation in the telecommunications infrastructure industry, largely because of low-price competition from Asia.
Analysts said it was a deal with long-term benefits.
"If Nokia wants to be significant player on the networks side, a move like this was expected and they had to do it," said Jari Honko of EQ Bank.
"In the longer perspective it's positive, but in the short term... integration of the units could be a painful process."
Annual savings will come from areas such as research and development costs.
The new firm will be one of the world's biggest phone equipment networks.
Analyst Ed Snyder of Charter Equity Research said the deal would have implications for the 60,000 staff employed by the companies.
"The merger gives Nokia and Siemens scale they couldn't get otherwise," he said.
"You're going to be able to get rid of a lot of people, basically. They share common markets."