Nokia Corporation and Siemens AG said yesterday they will combine their mobile network operations to create a joint venture with annual revenues of $20 billion, a move that will help them compete with market leader Ericsson.

The 50-50 joint venture, to be called Nokia Siemens Networks, will comprise Nokia’s network business group and Siemens’ carrier-related operations, creating estimated synergies of $1.9 billion by 2010, Nokia said.

Shares of Siemens surged nearly 7.8 percent in Frankfurt to $85.64 after the announcement, while Nokia was up nearly 3 percent to $20.38 in Helsinki.

“We believe the partnership with Siemens is the most effective way to build the scale and broad product portfolio necessary to compete globally and create value for shareholders”, Nokia’s new Chief Executive Olli-Pekka Kallasvuo said.

“The communications industry is converging, and a strong and independent Nokia Siemens Networks will be ideally positioned to help customers lower costs and grow revenue while managing the challenges of converging technology” Analysts said the deal made good sense in terms of industry consolidation.“Nokia has had difficulties being real strong on the network side. Now they will have a better position and this will also help on the cell phone side”, said David Larsson, an analyst with IT Research in Stockholm.

“Siemens is a company with major technical competence and with good connections to the computer side, and they have a very strong position on the European market. Ericsson’s system business will have a tougher challenger now”.

There was wide speculation about changes in Nokia’s strategy when Kallasvuo took over as CEO on June 1 from Jorma Ollila, who during 14 years at the helm turned Nokia into the world’s largest mobile phone maker.

Kallasvuo, who joined Nokia in 1982, worked closely with Ollila and his appointment was widely seen as signaling continuity in the company. When Kallasvuo took over, however, he hinted that Nokia would expand its divisions, in part through increasing corporate purchases.