South African fixed-line operator Telkom said it is in talks to buy rival Cell C, as it seeks to boost its fledging mobile phone business, sending its stock higher.
Buying Cell C, the third-largest mobile telecoms network in Africa's most industrialised country, would give Telkom about 20 million mobile phone users but also a company facing a consumer backlash due to slow network speeds.
Shares in the company rose as much as 3.6 percent on the news, backtracking to trade 0.42 percent higher at 63.90 rand by 0758 GMT.
Telkom, which said in a statement that it was currently performing due diligence on Cell C, did not indicate how much it would pay for the unlisted mobile firm.
"We know for sure that the combination of Cell C and Telkom is a good idea from a business perspective but it only makes sense if it's done at the right price," Avior Capital Markets equity analyst David Lerche said.
Oger Telecom South Africa owns 75 percent of Cell C. Oger said in March it would consider selling its stake but has not yet disposed of its majority holding in Cell C.
Telkom, in which the government and the state-owned pension fund own a combined stake of just over 51 percent, launched a mobile phone business five years ago to offset declining sales from its traditional phone business.
Telkom Chief Executive Sipho Maseko told Reuters in August that Cell C was an "interesting proposition".
"It could be a credible tie-up," said the Chief Executive of rival mobile phone network Vodacom, Shameel Joosub, at his firm's earnings briefing on Monday. Combining fixed-line and mobile businesses would make Telkom stronger, Josuub said.