Scotland's Atlantic Telecom yesterday transformed the size and geographical spread of its customer base by agreeing a £520m all-share takeover of First Telecom, Europe's largest reseller of telecommunications.

The deal gives Atlantic access to First Telecom's valuable contracts to roll out broadband services in Europe and ends the latter's plans for a stock market flotation of its own.

Analysts speculated that First Telecom decided to call off its float after the recent turbulence in the stock market which has wiped as much as 60% off the value of some telecoms stocks. However, Atlantic chief executive Graham Duncan denied this, insisting the pair had been in talks for several months and would make "an excellent fit".

The deal furthers Atlantic's ambition of becoming a leading alternative provider of domestic telecoms and high-speed internet services.

At the same time it announced a high-speed net service which will cover all call charges and be faster - but 25% more expensive than the offer BT announced earlier.

The enlarged group's customer base will extend from the 700,000 premises Atlantic supplies in four Scottish cities, across the 11,000 business and 290,000 residential customers First Telecom has acquired in Britain, Germany and France.

It will also have access to fibres in 16 European cities - including eight in Germany following a swap deal with Metromedia Fiber Network.

First Telecom shareholders will own 29.7% of the merged group and the deal is based on Atlantic's closing share price on Wednesday of 765p, valuing it at £1.14bn. Last night they closed down 64p at 701p.