The Federal Communications Commission has signed off on a merger between CenturyTel Inc. (CTL) and Embarq Corp. (EQ), marking the last regulatory hurdle for the companies to complete the transaction, according to a person with knowledge of the deal.

The companies announced their intention to merge in October. In the context of the recent market freeze, the deal is a significant transaction and could signify further consolidation of midsize phone companies.

As part of the merger, the two companies agreed to build high-speed Internet connections to 80% of their customer base within three years, which will require considerable resources because the two companies cover many rural areas.

According to the FCC, Embarq owns subsidiaries in 18 states and provides local exchange services over nearly 5.9 million telephone access lines and broadband service to 1.4 million subscribers.

CenturyTel's subsidiaries operate in 25 states, principally in small to midsize cities, and provide local exchange services over roughly 2 million telephone access lines and high-speed Internet connections to approximately 630,000 subscribers.

The companies have proposed merging in an all-stock transaction that would combine the seventh- and fourth-largest phone companies in the U.S., as measured by subscribers, to create a combined entity with 7.9 million subscribers in 33 states.

-By Fawn Johnson, Dow Jones Newswires; 202-862-9263; fawn.johnson@dowjones.com