Axiata is considering a bid for PT Axis Telekom, a rival in the Indonesian mobile market, according to Bloomberg. If consummated, the deal would create the country’s second largest operator.

Consolidation would also reduce somewhat the level of competition in one of Asia’s most hotly-contested mobile markets.

XL Axiata is Indonesia’s third largest operator with 49 million subscribers, according to Wireless Intelligence (Q1, 2013 figures), while PT Axis Telekom is the fifth-placed with 16 million subscribers.

Combining the two would make the second largest operator the country, lagging only Telkomsel, which has 120 million subscribers.

Parent Axiata, which is Malaysia’s largest mobile operator, would not comment on the possibility of a deal. Neither would Axis, which is 84 per cent owned by Saudi Telecom with the remainder held by Malaysia’s Maxis.

The report referenced three people with knowledge of the possible takeover.

Axiata would benefit from any deal by acquiring more spectrum for expansion, said one source. Alongside its rivals, the operator would also gain as consolidation tends to reduce pricing pressure in such a competitive market.

Earlier this month XL Axiata reported a first-quarter drop in profits by more than half to IDR315.5 billion ($32 million).

This week parent Axiata announced an 8.65 per cent increase in first quarter net profit to MYR614 million ($203.6 million). Revenue grew by 5.5 per cent to MYR 4.5 billion.