Private equity group CVC is holding talks with a rival buyout firm about merging its Swiss telecom business Sunrise with Orange Switzerland, a person familiar with the situation said.

CVC had held preliminary discussions with Providence Equity Partners over a possible merger if Providence won the auction for France Telecom's Swiss mobile operations, the person said.

There is no agreement between the two firms and any deal is highly conditional, the person added.

Such a tie-up would require Providence to beat a number of other private equity firms and rival telecoms groups.

Providence is up against buyout groups Apax , EQT and Doughty Hanson , as well as Egyptian telecoms tycoon Naguib Sawiris, Liberty Global's Cablecom and a team of Xavier Niel and Goldman Sachs Capital Partners, people familiar with the matter previously said.

Binding bids for group are due on December 12, with bankers expecting the company to fetch about 1.5 billion euros (1.28 billion pounds).

CVC held conversations with potential bidders about buying or merging with Orange at a later date, Reuters first reported in September.

The FT said on Friday that CVC has let the banking consortium that financed its Sunrise buy-out last year work with Providence on the equity group's bid for Orange.

France Telecom excluded CVC from the auction over fears its presence in the process would deter other bidders. It was also concerned that any tie-up would run into regulatory hurdles, people previously said.

An attempt by France Telecom to merge the two businesses failed in 2010 after competition regulators ruled a reduction to two players from three would be bad for consumers.

France Telecom hopes to have a binding deal for Orange by the end of the year, with a closing in the first quarter of 2012, CFO Gervais Pellissier told Reuters in an interview last month.

CVC, which manages capital for 300 institutional, governmental and private investors, declined to comment.

(Reporting by Simon Meads and Michelle Martin, Editing by Douwe Miedema)