* New group to offer landlines, mobiles, Internet
* Merged entity to have more lines than Telekom Austria
* Telekom Austria now has rival offering combined services (Adds detail, quotes, background)
VIENNA, July 28 (Reuters) - Mobile telecoms 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 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.
This compares with 3.4 million lines and 2016 revenue of 2.6 billion euros at Telekom Austria's A1 unit, which has so far had a monopoly on these combined telecoms services in the country with a population of 8.7 million.
"This is a clear challenge to (Telekom Austria's) A1," said Drei Austria Chief Executive Jan Trionow at a news conference.
"We want to move closer to A1 and will certainly not stop once we've reached them." A1 has a larger share of the lucrative market for business customers.
Trionow said it was too early to give longer-term earnings and sales guidance. The new management structure was also still being discussed.
Tele2 as a brand will be withdrawn from the Austrian market within the next 12 months, he said.
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.
Hutchison and Slim's America Movil became key players in the Austrian telecoms market in 2013 and 2014 with the Asian group buying France Telecom's Orange Austria and Slim becoming the majority owner of former state monopoly Telekom Austria.
Both groups invested about a billion euros at the time, hoping for further growth opportunities elsewhere in Europe. As these hopes did not materialize, digital broadband has become the major battleground.
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 progress was lagging most rich countries.
The government wants companies to have access to high-speed broadband internet even in the remotest parts of the Alpine country by 2020.
Hutchison, the number one in mobile internet and mobile entertainment services in Austria, plans to expand its expertise to business customers and generate more than 25 percent of revenue from them in the medium term.
At the merged group, that ratio would currently be 22 percent. The deal is expected to close this year, pending regulatory approval. ($1 = 0.8540 euros) (Editing by Alexander Smith and Keith Weir)