UPDATE 2-Hutchison's Drei buys Tele2 to rival Carlos Slim in Austria

* New group to offer landlines, mobiles, Internet

* Merged entity to have more lines than Telekom Austria

* Telekom Austria now alone offering combined services (Adds detail, background, quotes)

VIENNA, July 28 (Reuters) - Mobile firm Hutchison Drei Austria is buying landline-focused Tele2 from its Swedish owner for 95 million euros ($111 million) to create a rival to Mexican tycoon Carlos Slim's Telekom Austria.

Drei, also known as Three, said on Friday the merged group, led by Hong Kong-based Hutchison, would have around 1 billion euros in annual sales and four million mobile, landline and internet lines, or revenue generating units.

This compares with 3.4 million revenue units and a 2016 revenue of 2.6 billion euros at Telekom Austria, which has so far had a monopoly on these combined telecoms services in the country with a population of 8.7 million.

Austria is a highly competitive market for telecoms companies, especially in mobile broadband. All major operators, including Deutsche Telekom's Austrian unit, have an aggressive pricing policy.

Telekom Austria's hybrid router, which combines its fixed-line and the mobile network, offers fixed-line products with higher bandwidth.

And Hutchison's key rival set up a new unit to provide cloud services to companies earlier this year to broaden its customer base.

"By taking over Tele2 Austria we close the last gaps in our range of offers and are moving closer to number one in the market not only for private, but also for business customers," Drei Austria Chief Executive Jan Trionow said.

"In the future we will be the only real alternative to the former monopolist," he said, in an apparent reference to Telekom Austria, in which Slim's America Movil holds 51 percent and the Austrian state has a 28.4 percent stake.

The Drei Austria chief said the new group will play an integral part in providing high-speed internet for companies in Austria after the Organisation for Economic Co-operation and Development (OECD) warned recently that its transition towards digitalisation was lagging most rich countries.

Austria's government, in a move to close the gap in digitalisation, aims to provide high-speed broadband internet to the remotest parts of the Alpine country by 2020.

Hutchison entered the Austrian market in 2013 in taking over Orange Austria. The combined group will generate about 22 percent of its revenues with business customers and aims to increase that ratio to more than 25 percent in the medium-term, Drei's statement said.

The deal is expected to close this year, pending regulatory approval. ($1 = 0.8540 euros) (Reporting by Shadia Nasralla and Kirsti Knolle; Editing by Edmund Blair and Alexander Smith)