Indian operator giant Bharti Airtel is in talks to sell its operations in Sri Lanka to Middle-East based mobile group Etisalat, reports The Economic Times, in a move that would create the second-largest operator in the country.

Sources said Bharti Airtel Lanka has been valued at between $110 million and $130 million with Standard Chartered Bank advising the Indian group about a possible transaction.

The smallest of Sri Lanka’s five operators, Airtel had around 1.7 million connections at the end of the second quarter, according to GSMA Intelligence. Etisalat had 5.0 million connections, putting it in third place.

The 6.7 million connections the pair have between them would vault the combined entity past current number-two, Sri Lanka Telecom-owned Mobitel, which currently has 5.3 million connections.

Sri Lanka’s market leader is Axiata’s Dialog with 8.3 million connections, while Hutchison’s Hutch is in fourth place with 3.5 million connections.

One source told The Economic Times that only the top two operators make money in a market like Sri Lanka. Airtel has not increased its connections for several quarters and the unit has been making a loss,despite significant investment.

Airtel’s entrance into the Sri Lankan market in early 2009 was not welcomed by incumbents who were concerned that its scale would see it quickly dominate. Such was their concern, they initially refused to interconnect with the network, the report said.