The proposed merger comes as Vodafone boss Margherita Della Valle looks to slim down the company’s sprawling operations and pay down debt.

The company has struck a £15bn deal with Three to create the UK’s largest mobile network, although the deal is facing scrutiny from competition regulators, as well as a potential review on national security grounds.

In October, Vodafone sold its Spanish operations to Zegona Communications for €5bn.

Ms Della Valle has also outlined plans to cut 11,000 jobs as she admitted the company’s performance “has not been good enough”. Around 2,700 of those cuts took place in the first half of this year.

Iliad said the combined Italian company would generate profits of around €1.6bn on revenues of €5.8bn. It added that the merger would create €600m in cost savings.

Karen Egan, head of mobile at Enders Analysis, described the implied valuation of Vodafone Italia as “really quite attractive in today’s market”.

She added: “[Iliad] will definitely be conscious that Vodafone shareholders want action and they want to take advantage of that.”

Thomas Reynaud, Iliad chief executive, said: “The market context in Italy calls for the creation of the most innovative telecom challenger, with ability to compete and create value in a competitive environment.

“We believe that the profiles and complementary expertise of Iliad and Vodafone in Italy would allow us to build a strong operator with the ability and financial strength to invest for the long term.

“NewCo would be fully committed to accelerating the country’s digital transformation and especially fibre adoption and 5G deployment, with more than €4bn of investment planned over the next five years.”

Vodafone said: “Consistent with its previous statements, Vodafone is supportive of in-market consolidation in countries where it is not achieving appropriate returns on invested capital and confirms it is exploring options with several parties to achieve this in Italy, including through a merger or a disposal.

“There can be no certainty that any transaction will ultimately be agreed. If required, a further announcement will be made when appropriate.”