Both firms said no talks over a specific deal had occurred, while analysts and bankers said any combination of the two former monopolies would take time and require the political backing of Italy and France.

Orange CEO Stephane Richard's remarks in a newspaper interview on Sunday come during a period of uncertainty for the indebted Telecom Italia, with a group of investors preparing to sell their shares and Rome discussing measures that may force it into a costly network overhaul.

Telecom companies in Europe have been in a deal-making frenzy since 2013 as they seek to combine fixed-line and mobile services, exit non-core markets and cut costs. But to date no big cross-border deals have joined telecom majors, although

European regulators would like to see regional champions emerge to anchor much-needed broadband investment.

At 1210 GMT, Telecom Italia shares were flat at 1.073 euros after trading as high as 1.11 euros. Orange shares were down 0.3 percent at 16.26 euros.

A source close to Telecom Italia said a deal was unlikely any time soon: "I think it will take at least two years for any major deal.

This is because Telecom Italia needs to find a solution for Brazil and stabilise its shareholder base." The source added Deutsche Telekom was also seen as a potential bidder, though an industry banker said the German firm would want Telecom Italia to sell its Brazilian arm first.

Telecom Italia's shareholder base in the midst of change. Vivendi is due to take an 8 percent voting stake and become its largest investor when the French media group completes the sale of a Brazilian asset to Telefonica.

Meanwhile Italy's Generali, Intesa, and Mediobanca -- which used to control Telecom Italia with Spain's Telefonica -- are expected to sell their shares.

There is also uncertainty over Telecom Italia's network.

The Italian government is meeting on Tuesday to approve measures to speed up the roll-out of ultrafast networks, and a leaked decree has raised the spectre of the company having to switch off its copper wires and write off assets worth billions of euros.