Deutsche Telekom is offering to buy back shares in its internet subsidiary in a bid to strengthen its ability to provide bundled voice, data and video services.
The company offered to pay nearly €3bn (£2.06bn) to re-absorb the 26% of T-Online International, which is Europe's largest internet service provider with more than 13 million customers.
The move reflects a trend in the telco sector to tap the potential of high-speed broadband internet access and services by reintegrating these offerings into their core fixed-network operations.
Deutsche Telekom, which is Europe's largest telecommunications company, follows second placed France Télécom, which offered to buy out the minority shareholders in its Wanadoo internet unit.
The merger is "the right move at the right time", Deutsche Telekom chief executive officer Kai-Uwe Ricke said.
The move was shaped by strong increases in the number of broadband customers and the growing convergence of business models developed by telcos and ISPs, particularly in the area of "triple-play" voice, internet and TV services over broadband connections.
"This progressive merging also means that from a customer perspective, the internet is losing its status as a separate, independent business segment," Ricke said.
The move, he said, will increase efficiency in managing broadband operations, enabling the operator to centralise customer relationships and provide customers with one point of contact.
Under the planned merger, T-Online will remain a separate organisation responsible for developing IP services and applications, while T-Com, the fixed-network unit, will focus on network management, integrated platforms and the development of open standards, in addition to providing circuit-switched telephone service.
Not surprisingly, as broadband convergence begins to spill into wireless communications, Deutsche Telekom has shunned moves to spin off its mobile phone unit, T-Mobile International.
Equipment manufacturers are responding to the trend toward convergence by restructuring their organisations to meet the growing needs of their telco customers for integrated products. Earlier this month, Siemens merged its fixed and mobile communication network operations.
John Blau writes for IDG News Service