By Jens Hansegard 

STOCKHOLM-- Ericsson AB and Cisco Systems Inc., two of the world's biggest telecom-equipment providers, have clinched a broad technology and commercial partnership that stops short of a full-blown merger but covers cooperation from research and development to customer service.

The two companies said Monday they would team up across the board, including jointly working on a wide range of products used i n wireless networks and Internet infrastructure as they face heightened competition from the EUR15.6 billion takeover of Alcatel-Lucent SA by Nokia Corp ., expected to be formally launched later this month, and the relentless rise of China-based Huawei Technologies Co.

The alliance will help add $1 billion or more in annual sales for each company by 2018, Sweden's Ericsson and U.S. company Cisco said.

It is an unusual move in such an intensely competitive climate where acquisition is the norm. And it could arouse political concerns on both sides of the Atlantic, where governments are eager to closely monitor suppliers of equipment regarded as highly sensitive for security and privacy reasons. Huawei has been essentially shut out of the U.S. market after a U.S. congressional report deemed it a risk to national security.

The pact between Ericsson and Cisco also highlights how the demarcation between telecoms and Internet networks has become increasingly blurred, forcing companies from both sides to consider ways to address the wider market.

For Ericsson, the alliance could help it retain its position as the world's biggest telecom-equipment supplier by sales just as Nordic rival Nokia regains strength. Nokia's takeover of Alcatel-Lucent could create a powerful challenger to both Ericsson, a leader in wireless equipment, and Cisco, which dominates market for Internet gear.

Ericsson said the partnership with Cisco will allow it to broaden its offering immediately, much faster than what it could have achieved through an acquisition or by developing Internet equipment in-house.

"This is a much more agile and efficient choice," Ericsson Chief Executive Hans Vestberg said in an interview. "We can start already tomorrow."

Cisco said pairing up with Ericsson will help it address a larger market without getting entangled in prolonged merger talks, and didn't raise much of an overlap issue.

"The deal gives us an expanded reach around the world that we don't have today," Cisco Chief Executive Chuck Robbins said during a conference call.

Mr. Vestberg, who said talks with Cisco had begun 13 months ago, pledged the alliance would generate cost savings of $1 billion at the Swedish firm by 2018.

Ericsson, which has around 37,000 patents and employs 116,240 staff world-wide, reported revenue of 228.0 billion Swedish kronor last year ($27.36 billion). San Jose, CA-based Cisco reported revenue of $49.2 billion in its latest fiscal year to July 25.

Ericsson had sought to develop Internet equipment by itself but has struggled to make significant headway. Its brand-new router for telecoms operators was launched in February for example, but isn't yet commercially available.

Meantime, its core business of supplying equipment to telecoms operators has suffered from price pressure and the relatively slow rollout of broadband wireless networks, known as 4G.

The Swedish company hasn't lost hope of expanding in new markets relying on its own strength. Ericsson has spent the past two years developing equipment for data centers used by telecoms operators.

The new products are expected to hit shelves in the coming months and won't be included in the alliance with Cisco, an Ericsson spokeswoman said.

Write to Jens Hansegard at jens.hansegard@wsj.com

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(END) Dow Jones Newswires

November 09, 2015 11:26 ET (16:26 GMT)