The merger is an effort to offer bundled fixed and mobile services and increase its global exposure.
KT’s move is seen as necessary if it is to compete with SK Telecom and LG Telecom.
South Korea’s mobile and household broadband markets are approaching saturation and operators in the country are battling for customers.
This has led to the offering of products bundling fixed-line, broadband, Internet TV and mobile services.
The deal ends months of speculation and will see KT absorb the mobile unit, of which it owns 54 per cent.
NTT DoCoMo, Japan’s largest mobile operator, also owns 11 per cent of KTF.
The terms of the deal mean KTF shareholders will receive 0.719 of a KT share for every KTF share they own.
KT is also to sell USD $253 million bonds exchangeable into its stocks to DoCoMo as part of the merger plan.
The Japanese firm will transfer 60 per cent of its holding in KTF to KT.