Bharti Airtel’s Kenyan unit has agreed to combine operations with Telkom Kenya, creating the second-largest telecommunications operator in the East African nation after Safaricom.

Telkom, which is 60% owned by Helios Investment Partners and the rest by the Kenyan government, will have an option of taking as much as 49% of the new company, it said in an e-mailed statement on Friday. The companies will merge mobile, enterprise and carrier services into the new entity to operate as Airtel-Telkom, according to the statement. Telkom’s real estate portfolio and government services are not part of the deal.

The company will take on industry leader Safaricom, which is partly owned by Johannesburg-based Vodacom Group and had 29.9 million users by end of September, according to the Communications Authority. That translated to a market share of 64.2%, compared to Airtel’s 22.3%.

Safaricom, East Africa’s biggest company by valuation, is dominant in the lucrative mobile money transaction business, which rose almost 19% to 1.59 trillion shillings (US$15.8-billion) in 2018, accounting for 78% of such transactions, according to the regulator.

The merged company will be chaired by Telkom CEO Mugo Kibati, while his Airtel counterpart, Prasanta Sarma, will be its executive head, according to the statement.

The deal’s closure is subject to regulatory approval.

‘Political decision’

“Airtel and Telkom Kenya’s plan to merge is a sensible option, given Safaricom’s ongoing success, but could be difficult to get past regulators, as it would effectively create a duopoly,” said John Davies, a Bloomberg Intelligence analyst. “We think sectoral regulation should give better consumer outcomes, though ultimately it’s a political decision.”

“It’s positive for the two to merge because this becomes a stronger competitor for Safaricom,” Tracy Kivunyu, an analyst at Exotix Capital, said by phone from the Kenyan capital, Nairobi. “It becomes a two-player market, which is a good thing since Airtel was able to get market share, unlike Telkom, since they have a similar customer profile.”