The prospect of a tie-up between Vodafone and 3 UK, the Hong Kong-owned mobile operator, moved closer after the two companies unveiled a merger of their Australian businesses.

Vodafone, Europe's biggest mobile company, announced today that it would merge its business in Australia with the domestic mobile phone business of Hutchison Whampoa.

The new 50-50 joint venture, which will market its products under the Vodafone brand, will create a mobile phone powerhouse, with nearly six million customers and combined total revenues of about A$4 billion (£!.8 billion).

The deal is likely to reignite speculation about a tie-up between Vodafone and 3 in the UK.

After launching six years ago as the UK's first "next-generation" 3G mobile phone company, 3 failed to gain the kind of traction that it had hoped for.

The new 3G technology was beset with problems — one executive famously said that 3G handsets were hot enough to fry an egg on — and the group was forced into focusing on cheap voice and text deals rather than premium video calling and internet surfing services.

Despite pouring more than £10 billion into the business it has, according to the group's latest interim report, under five million customers and is lossmaking.

Vodafone has said in the past that 3's mobile assets were a likely target for any mobile player seeking to act as a consolidator in the cut-throat markets of Western Europe.

As it confronts the economic downturn, a move to create a stronger operator in the UK — one of the most competitive mobile phone markets — could be appealing.

Vittorio Colao, the new chief executive of Vodafone, said late last year that Vodafone had "underperformed recently" in the UK.

Efforts to do battle in Britain's tough marketplace has increasingly seen bitter rivalries put to one side with announcements of network and other deals between players.

The UK has five mobile network operators but none with more than a 30 per cent share of subscribers.

Under the Australia deal Vodafone will receive a deferred payment of A$500 million from VHA, the name for the new venture.

Mr Colao said that the tie-up would "create a company with the necessary scale to compete strongly in the mobile market".

The market in Australia is divided among Telstra, the dominant player, with 40 per cent, Optus, with 30 per cent, Vodafone, with 18 per cent, and 3, with 8 per cent.

Analysts were divided about whether Vodafone would want to tie up with 3 in the UK.

One, who declined to be named, said: "I am sure Vodafone would be interested in buying 3 but it is more likely that T-Mobile and 3 will end up together and one of the bigger players will then buy them."

A spokesman for Vodafone said: "This is just in Australia. There are no plans for the UK."

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive