KUALA LUMPUR (BLOOMBERG) - Malaysia's Axiata Group and Norway's Telenor are in advanced discussions to merge their Malaysian mobile operations, which could create the country's biggest cellphone operator by subscribers.

The parties are working towards finalising a deal to combine Celcom Networks and Digi.com, according to a joint statement on Thursday (April 8). Axiata and Telenor will have an equal ownership of 33.1 per cent each in the merged entity, Celcom Digi Bhd. The announcement confirms an earlier Bloomberg News report.

The planned merger comes as the Malaysian government's move to build and manage a 5G network on its own instead of relying on private carriers has spurred expectations of a consolidation in the industry. By offering high-speed services via a state-owned special purchase vehicle, private players must compete on pricing as there will not be any differentiation in terms of coverage between them.

"Size matters, not just in the combined cellphone customers, but in having the financial capability to support Malaysia's digital aspirations," Mr Jorgen C. Arentz Rostrup, head of Telenor Asia, said at a briefing. "We're preparing for a new reality that goes beyond connectivity - to participate in all the new technologies that 5G will enable."

The merged entity will have 19 million cellphone users in total, challenging rival Maxis, and a combined revenue of RM12.4 billion (S$4 billion). The new company will remain listed on Bursa Malaysia, according to the statement.

Both Axiata and Telenor had previously announced plans to merge their Asian operations in 2019, but the talk was called off several months later.

Thursday's proposal is subject to approval from the Digi board and Celcom shareholders as well as from the regulators, and there is no certainty that the talks will result in any agreement, the companies said.

Shares of Axiata and DiGi.Com were halted for the announcement.