The British telecommunications company, Vodafone, is to acquire a 25 per cent stake in Swisscom's mobile phone division. The SFr4.5 billion deal was approved by the Swiss cabinet on Wednesday.
The Swiss government is Swisscom's majority shareholder and holds 65.5 per cent of the equity.
Swisscom will receive part cash and part Vodafone shares for the transaction, which should be completed before the end of next March
Switzerland's biggest telecommunications company said it would use the proceeds from the sale to fund future growth and reduce debt. It said it is also considering a share buy-back programme.
But analysts say one of the most important aspects of the deal is that it strengthens both companies as they prepare for the next phase of the mobile phone revolution.
Under the partnership with Vodafone, Swisscom's German debitel unit will gain access to Germany's third generation UMTS network through Vodafone's D2 Mannesmann Mobilfunk unit.
Vodafone gets a stake in Switzerland's leading mobile company less than a week before the start of the country's auction of four third-generation licences.
In another development in the telecommunication sector, France Telecom has acquired a majority stake in Swiss Orange Telecommunications.
It is buying E.On's 42,5 per cent share for an estimated minimum of SFr2.4 billion.
Orange is also in the running for a third generation mobile telecommunications licence in Switzerland.
swissinfo with agencies