The Boards of SP Telemedia (ASX:SOT) and B Digital (AX:BBB) announced today that the two companies had signed a binding heads of agreement to form a strategic alliance. The agreement will involve BBB paying SOT about $110 million worth of shares and cash, resulting in SOT owning a 30% stake in BBB.

The alliance will link the emerging voice carriage service provider BBB with the expanding IP telecommunications network of SOT, which earlier this month, acquired the Comindico network at a bargain basement price.

While neither company has flagged the possibility, the alliance may well be a first step toward a fully fledged merger between the two growing telcos.

The transactions resulting from the heads of agreement involve:
the sale to BBB of SOT's telecommunications resale business, Kooee Communications; and
the sale of 50% of SOT's investment in the assets and business of Comindico to BBB.

BBB will pay SOT in the form of 240 million BBB shares and $13.75 million in cash for the two businesses, equating to a total paper value of about $110 million.

The 240 million shares issued by BBB to SOT will equate to an approximate 30% interest in BBB following completion. The closing of the transactions will be subject to the satisfaction of conditions, including the completion of acceptable due diligence by BBB and final transaction documents, the preparation of an independent expert's report concluding that the transactions are reasonable for BBB shareholders, BBB shareholder approval and necessary third party consents.

SOT currently owns and operates one of Australia's largest regional broadband telecommunications networks in Australia. The SOT network is a fully converged network, enabling the carriage of video, voice and data on one platform and is Voice over IP (VoIP) capable. On completion of the acquisition of the Comindico network, SOT will have extensive reach and coverage throughout regional and metropolitan Australia. Comindico operates an IP network with voice interconnect at all 66 Telstra call collection areas achieving an approximate 98.5% coverage of Australia, according to SOT.

BBB provides various fixed line and mobile telephony products and services under the "B Digital" and "DigiPlus" brands and has more than 510,000 customers.

Shares in both companies were up sharply in heavy trading at the close.