Vodafone has confirmed it is in discussions with cable giant Liberty Global about a possible asset swap but insisted the two companies are not planning a full merger.

In a statement issued Friday morning in response to recent media speculation, the UK-based operator said it was in the "early stages of discussions with Liberty Global regarding a possible exchange of selected assets between the two companies."

The statement comes after John Malone, the chairman of Liberty Global Inc. (Nasdaq: LBTY), was last month reported to have said Vodafone Group plc (NYSE: VOD) would make a "great fit" with Liberty in Europe if the two organizations could find a way of working together or combining. (See Liberty Global Keen on Vodafone Tie-Up – Report.)

But Vodafone appeared to rule out the latter option in today's statement, insisting it "is not in discussions with Liberty Global concerning a combination of the two companies."

Vodafone has more than 122 million mobile subscribers in Europe, while about 26 million homes in the region were taking services from Liberty at the end of March.

A deal could see Vodafone acquire cable assets from Liberty in a number of European markets, with Liberty taking control of mobile phone networks owned by Vodafone elsewhere.

Alternatively, the companies may look to form joint-venture agreements in markets where Vodafone is weak in fixed while Liberty struggles in mobile.

In the UK, for instance, Vodafone must rely on fixed-line incumbent BT Group plc (NYSE: BT; London: BTA) for mobile backhaul and to provide its own broadband services, while Liberty's Virgin Media Inc. (Nasdaq: VMED) rents capacity from 4G market leader EE to compete in mobile.

A looming merger between BT and EE has undoubtedly increased the pressure on both Vodafone and Virgin Media to find alternative arrangements. (See BT Locks Down £12.5B EE Takeover Deal.)

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Elsewhere, too, both companies are keen on beefing up their capabilities as rivals with fixed and wireless assets launch "quad-play" offerings that bundle fixed voice, broadband, TV and mobile services in one package.

Like other telecom operators, Vodafone also believes there are synergies to be had from owning fixed-line and mobile infrastructure, and that combining the capabilities of the different technologies could produce new types of converged services.

Liberty, meanwhile, has already demonstrated that it prefers to control its own mobile network than rent capacity from mobile rivals in certain European markets.

In April, its Belgian Telenet subsidiary agreed to pay €1.325 billion (US$1.5 billion) for BASE , a mobile operator owned by Dutch incumbent KPN Telecom NV (NYSE: KPN). (See Telenet Buys KPN's BASE in $1.4B Deal.)

Telenet has been operating as a mobile virtual network operator through a deal with Mobistar SA , Belgium's second-biggest mobile operator, but has said network ownership will allow it "to secure long-term access conditions."

Analysts had previously suggested that Vodafone might spin off its non-European businesses into a separate company before merging with Liberty, but such a mega-deal would have been hard to execute and faced numerous regulatory hurdles.

Vodafone might also see little need for a tie-up with Liberty in some key markets following recent takeover activities.

In Germany, for instance, Vodafone has already acquired Kabel Deutschland GmbH , the country's biggest cable operator, and is working on developing quad-play services in response to recent convergence moves by rival Deutsche Telekom AG (NYSE: DT).

That said, an acquisition of assets owned by Unitymedia GmbH , Liberty's German subsidiary, could strengthen Vodafone's position in Germany's broadband market if regulatory authorities were to bless the deal.

Besides Germany and the UK, the two companies are both present in the markets of the Czech Republic, Hungary, Ireland, the Netherlands and Romania.

Vodafone's share price opened 2.4% higher on the London Stock Exchange this morning but was trading 2.3% lower by 9.20 a.m.

— Iain Morris, , News Editor, Light Reading