Vodafone is in the early stage of talks to buy rival Tata Teleservices in a move that would create India’s largest mobile operator, according to Economic Times.

Talks are going on between Vodafone and the Tata Group, which holds 59.5 per cent of Tata Teleservices.

“Discussions are at an early stage. It is difficult at this stage to say what the outcome of these talks will be,” said a source.

Putting together Vodafone’s 158 million connections with the 63 million held by Tata Teleservices would vault the combined entity past market leader Bharti Airtel’s 197 million connections (GSMA Intelligence, Q4 2013 figures).

However, any deal is complicated by the fact that the second-largest shareholder in Tata Teleservices – NTT Docomo – has first refusal on Tata’s stake. Docomo’s shareholding is 26.5 per cent.

If Docomo declines to exercise its option then Tata has the right to force the Japanese operator to sell its stake to a buyer of Tata’s choice, according to two people familiar with the arrangement.

If certain performance parameters are not met by end-March 2014, and Docomo wants to sell its stake, then Tata is obliged to find a buyer for the Japanese operator’s shareholding. If it fails to do so then Tata itself would have to buy up the stake.

However it is unclear if the performance parameters between the two companies have been triggered yet.

According to a person familiar with the situation, Vodafone would want to buy out all the shareholders in Tata Teleservices, including the Tata Group and Docomo. The other significant shareholders are Temasek (6.5 per cent) and Siva Industries (3.2 per cent). Smaller shareholders hold the remaining 4.3 per cent.