Carphone Warehouse, UK's third-largest broadband provider, has agreed to pay £236 million in cash for the UK assets of Tiscali, the Italian Italian internet service provider.
This will propel Carphone as Britain's second largest broadband provider with 4.25 million customers.
''The deal would probably accelerate the company's plans to split its retail and telecom interests, said Charles Dunstone, Carphone's chief executive, adding that a demerger could be executed in November or January.
"We are very committed to this business and the acquisition we have made reinforces that," he said.
Carphone has about 2.8 million customers, while Tiscali is the fifth largest internet service provider in the UK with 1.45 million clients.
The transaction is expected to boost Carphone's profit, raising earnings per share in 2009-10 by 10 per cent; however, the company's net debt is due to rise to £416 million.
Carphone's retail interests consist of its 50 per cent stake in Best Buy Europe, the joint venture with US retailer Best Buy. The venture sells mobile phones plus products such as laptops. The company operates 2,400 mobile phone shops across Europe.
Following the Tiscali deal, Carphone would be the largest broadband provider to consumers, ahead of BT, Virgin Media and British Sky Broadcasting. However, BT's retail division has 4.7 million broadband customers because it counts small businesses as well as consumers.
Tiscali had previously been in talks with BSkyB, but negotiations broke down earlier this year.
It had net debt of €601 million (£522m) as on 31 December.
"The transaction should be considered in light of the strong consolidating trend in the highly competitive UK market, evaluating Tiscali UK activities as a whole, thus preserving the value of its industrial assets and know-how within the Carphone Warehouse Group," said Mario Rosso, chief executive of Tiscali.