The two groups, iNavSat and Eurely, were awarded the contract by the Galileo Joint Undertaking, the body set up to drive the project's early phases.

A constellation of 30 spacecraft should be in orbit by the decade's end.

Galileo's technologies are designed to bring greater accuracy and reliability to navigation and timing signals.

Part of this high performance will come from its ability to work seamlessly with the existing US Global Positioning System (GPS).

The test satellites are already under construction, with the first scheduled to launch on a Russian Soyuz rocket in December.

The Galileo Joint Undertaking, set up by the European Commission and the European Space Agency (Esa), settled on a combined bid once the rival groups could show there were benefits for taxpayers in running with a larger, single consortium.

'Better deal'

"The joint offer contains substantial improvements compared to the separate offers that were on the table," commission vice-president Jacques Barrot said in a statement.

The final contract will give the companies the right to operate Galileo for 20 years and reap the commercial gains from it.

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Analysts differ in their projections for the size of this revenue stream - but most foresee the Galileo-enhanced business - equipment and services - to be worth well in excess of 10 billion euros a year by 2020.

iNavSat comprises the European aerospace giant EADS, France's Thales and British-based satellite communications group Inmarsat. Eurely is made up of France's Alcatel, Italy's Finmeccanica and Spain's AENA and Hispasat.

In partnership, they will now tie up the details of the deal over the course of the next six months.

Public and private

"We found areas where each side could offer something that was just a bit more attractive. That enabled us to take the peaks from the two sides and come up with an offer that was better for the public sector," explained Lyn Dutton, a Global Navigation Satellite System (GNSS) development manager with Thales in the UK.

"All the major European players in the GNSS field are now involved in this consortium. There is a good fit," he told the BBC News website."

The taxpayers of the 25-nation EU are funding the early development of Galileo to the tune of 1.1 billion euros.

The deployment of the system - the launch of the satellites and the construction of ground stations - will cost a further 2.1 billion euros, with two-thirds of the investment borne by the private sector. The latter is also expected to pick up all the running costs in the long term.

The first demonstrator spacecraft are already under construction in the UK and Italy.

These will secure the frequencies allocated by the international community to Galileo and allow in-orbit testing of key technologies, such as the atomic clocks which are essential to the system's operation.

The contract for the first four satellites proper in the final constellation was awarded at the end of last year. These are set to be launched in 2008 with the remaining 26 to be sent up in batches shortly afterwards.