European incumbent telephone companies Swisscom and Telekom Austria said on Thursday that they have broken off merger talks.
Swisscom had repeatedly expressed interest in a deal with Telekom Austria in recent months. Earlier this week, the Swiss operator finally confirmed talks.
But in a statement released on Thursday, Swisscom said that although both parties agreed on the advantages of a merger, under the current circumstances "they do not consider it possible to find a solution that would serve the interests of all concerned".
Swisscom is almost 63% owned by the Swiss government, which has no immediate plans to lower state ownership. By comparison, the Austrian government, which still owns about 47% of Telekom Austria, said in May it plans to sell another 17%.
Selling out to a state-controlled rival would have been politically difficult for the Austrian government, which is fully committed to a full privatisation of Telekom Austria by 2006.
"It was a political decision [on the part of the Austrians] not to continue talks," said Swisscom chief executive Jens Alder. "We regret the decision," he added.
Financially, the deal would have been an acquisition, with Swisscom taking a controlling stake in Telekom Austria, Alder said. However, technically it would have seen both companies merge their employees and management teams to "take advantage of the expertise in both companies."
Asked whether Swisscom would make another attempt at the merger, Adler said, "You should never say never in this business, but I would say no in the foreseeable future."
Adler said he does not see any other investment opportunities for Swisscom to expand at the moment. He said the operator will continue to invest in its domestic business.
John Blau writes for the IDG News Service