Indonesian operator XL Axiata is in negotiations to acquire smaller rival Axis Telekom which, if successful, would create the country’s second largest operator.

Axiata has received a letter of approval from the Ministry of Communications and Information, said the operator’s president director Hasnul Suhaimi, according to the Jakarta Globe.

However Suhaimi emphasised that the deal was far from finalised since Axiata was still in negotiations with Axis. The next stage is for the two companies to sign a conditional sale and purchase agreement, he said.

A combination between the country’s number-three operator Axiata, which has 47.9 million subscribers, and fifth-placed Axis (16.9 million subscribers) would vault the new entity into second spot with 64.8 million subscribers (all figures GSMA Intelligence, Q2 2013).

The new combination would leapfrog Indosat with 61 million subscribers but still lag considerably behind market leader Telkomsel with 123 million subscribers.

Axis, which is 84 per cent owned by the Saudi Telecom Company, is thought to be worth in the region of $1 billion. Malaysia’s Axiata holds a 66.5 per cent stake in XL Axiata.

There were reports of talks between the two companies in May.

It is unlikely to be the last such deal in Indonesia. Communications and Information Technology Minister Tifatul Sembiring has called other mobile operators in the competitive market to come together. Currently, the top three operators hold 92 per cent of the revenue between them.