India’s fourth largest operator Reliance Communications (RCom) is in talks with smaller rivals Aircel and Sistema (SSTL) over an ambitious three-way merger which could create India’s third largest operator, according to The Economic Times (ET).

A source said the first phase of the deal, which is at an advanced stage, will see Sistema merge with RCom through a stock swap agreement while the second phase could involve a deal with Aircel.

RCom and Sistema’s talks started in June and earlier this month they reportedly completed the due diligence with their boards set to meet in November to confirm the deal which would give SSTL an 8 to 10 per cent stake, while RCom would take the remaining stake.

Both RCom and Aircel want to reduce debt: RCom is selling stakes in its tower and overseas businesses while Aircel wants to sell 4G airwaves to Bharti Airtel.

Another ET source said RCom would prefer to trade and share airwaves than engage in a full-scale merger.

If the merger does take place, Aircel owner Maxis could end up as the largest shareholder with a 30 to 40 per cent stake, the Anil Ambani group (which owns nearly 60 per cent in RCom) would have a stake under 30 per cent, Sistema would get less than 10 per cent, and the remaining stake would go to RCom shareholders.

Loss-making Aircel will bring all its infrastructure to the deal, the report said.