German carrier Deutsche Telekom said Thursday it will merge its domestic mobile and landline businesses into a single company, to increase its competitiveness in its toughest market.

T-Home and T-Mobile will join forces to better respond to the challenges facing the industry by offering integrated solutions and services from a single source. At the same time the new German company is expected to generate a medium term earnings boost of up to €600m.

Chief executive Rene Obermann said that on the one hand, customers with fixed-network and mobile contracts with Deutsche Telekom are considerably more loyal. While “On the other hand, just one in five of our 29 million customer households currently has a fixed-network and a mobile contract with Deutsche Telekom. If we were to persuade just one percent of the remaining customers to sign up for a second contract, our revenue could increase by up to €100m per year.”

Obermann referred to Hungarian operation Magyar Telekom as a very successful integrated provider within the Deutsche Telekom group.

Deutsche Telekom reported a 7.2 per cent rise in net profit for the third quarter, from €895m in 2008 to €959m in the third quarter of 2009. Revenues climbed 5.2 per cent year on year to €16.3bn.

The US operation continued to be the driving force, with T-Mobile USA delivering a 4.4 per cent increase in profits to €595m, while Europe didn’t fare so well due to the continued decline of fixed line revenues, particularly in Germany, while revenues were down across the board with T-Mobile in Europe.

In early September, months of speculation about consolidation in the UK mobile market finally came to an end when France Telecom and Deutsche Telecom announced plans to merge their UK mobile businesses, T-Mobile and Orange.