Telecommunications firms Vocus and M2 are planning to merge to create a $3 billion company that can better compete with industry giants Telstra and Optus.

The boards of the two firms are unanimously recommending an all share merger deal that will see M2 shareholders receive 1.625 Vocus shares for every M2 share they own.

If shareholders agree, and the Australian Competition and Consumer Commission (ACCC) gives its blessing, the deal would create the fourth biggest integrated telecommunications company in Australia.

ACCC approval appears highly likely given comments this morning from its chairman Rod Sims, distinguishing this deal from an earlier observation about telecommunications takeovers.

"The comment around reluctance about more mergers was certainly about a four to three [player shrinking] and therefore is not relevant to this transaction," he told Fairfax Media.

"So obviously if it was Telstra, Optus or TPG acquiring M2 I would say that it fits straight under what I was talking about and would be something we would have strong concerns about.

"Having said that, I'm going to be neutral and say we're going to look at it ... with an open mind."

Top 100 company

The two firms say the combined entity would easily sit within the ASX 100 index of Australia's biggest listed companies, with a market value of more than $3 billion.

Combined revenue is expected to be around $1.8 billion, with pre-tax earnings of approximately $370 million this financial year.

However, the companies expect to make cost savings of around $40 million per annum by financial year 2018 from the synergies of combining the businesses.

The companies are also hoping to boost revenue as a combined firm, by being able to bundle more services together for clients.

If the merger goes ahead, the combined company will offer retail internet, electricity and gas sales, corporate internet and IP voice, wholesale internet and IP voice, data centre and cloud services and access to various fibre.

Vocus chairman David Spence said the deal makes sense for both sets of shareholders.

"The businesses combine Vocus' telecommunications infrastructure and corporate customer base with M2's demonstrated expertise in the consumer and SME [small-medium enterprise] segments," he noted in a statement.

The board of a combined company would include four representatives from each of the current boards.

Vocus chief executive and founder James Spenceley will remain on the board as an executive director, as will Vaughan Bowen, the founder and an executive director of M2.

M2's chief executive Geoff Horth will continue on to run the combined group.

The companies expect to put the deal to a shareholder vote in early 2016.