BT Group has finalised a £12.5bn deal to buy EE, Britain’s largest mobile phone network, and cement its status as the biggest player in the UK telecoms market .

Gavin Patterson, BT’s chief executive, described the transaction as a major milestone for the company, combining the owner of the UK’s biggest telecoms and broadband network with the country’s most-advanced 4G mobile system.

Shares in BT jumped 4.5% to 442p, the second biggest rise in the FTSE 100, as investors welcomed the group’s return to the mobile market. It spun-off its 02 network in 2001. The transaction will make BT the latest company to offer bundled packages of broadband, landline, mobile and pay-TV. Known in the industry as “quadplay”, it is already offered by TalkTalk and Virgin Media and soon Sky will sell it too after it signed a deal with 02.

Buying bundled telecoms and TV services has been popular with cost-conscious households in Europe, particularly in Spain.

Patterson sought to assuage fears that consolidation in the UK telecoms market will hurt consumers, saying that combining services should reduce prices. “If you look across the continent, prices in general have come down to some extent when fixed and mobile products are sold as a bundle. So I expect some of the savings we are able to make by simplifying the network will be passed on to the consumer.

“The UK’s leading 4G network will now dovetail with the UK’s biggest fibre network … consumers and businesses will benefit from new products and services as well as from increased investment and innovation.”

Patterson said he expected the deal to be approved by the UK Competition and Markets Authority, without having to change the terms.

However Vittorio Colao, the chief executive of rival Vodafone, said the deal required more scrutiny, and that BT’s Openreach, which is rolling out superfast fibre broadband in the UK, should now be spun off.

Olaf Swantee, EE chief executive, said the deal ensured that the UK would remain at the forefront of the global mobile industry.

BT revealed in December it was in exclusive talks to buy EE, which has 31 million customers and the largest 4G customer base of any operator in Europe. BT has about 10 million customers.

Under the terms of the deal, BT will pay EE owners Deutsche Telekom and Orange a combination of cash and shares. It will leave Deutsche Telekom – Germany’s partly state-owned telecoms company – with a 12% stake in BT, while France’s Orange will be paid about £3.4bn in cash and hold a 4% stake.

BT expects combining the two companies to lead to £360m of savings a year. To achieve this, there will be about £600m of integration costs, BT said, but the company said it was “too early to speculate” on whether there would be job losses.

Meanwhile Hutchison Whampoa is now in talks to buy BT’s former unit O2 from Telefónica for up to £10.25bn, accelerating consolidation in the industry if the deal goes ahead. Hong-Kong based Hutchison, run by Asia’s richest man, Li Ka-shing, already owns the 3 mobile network and combining it with O2 would create the UK’s biggest mobile group.

The Communication Workers Union welcomed the deal between BT and EE, which employs about 13,000 people, saying that it should bring job security and better terms for staff. The union, the biggest in the UK telecoms sector, said its membership had increased since speculation about the deal emerged.

Andy Kerr, CWU deputy general secretary, said: “We expect this to strengthen job security for workers at both BT and EE. We will be discussing issues on future employment with the company following this takeover and in particular the CWU is keen to fully represent workers across EE.

“This takeover should present the opportunity for a positive move on employment relations for the thousands of people working at EE.”