India's Reliance Communications has started talks to buy Kuwaiti Zain's African operations, which media say are worth $10 billion, two banking sources said.
The move underscores a drive by Indian telecom companies to gain a foothold in Africa, where mobile phone penetration is low and the potential for growth high.
Bharti Airtel, Reliance's bigger home rival, is in exclusive talks with South Africa's MTN Group to create the world's third-largest wireless firm with more than 200 million users.
Reliance and Bharti separately held talks with MTN last year, but failed to seal a deal. Bharti revived its talks with MTN in May.
Mobile penetration is below 40 percent in half the African markets, and a dozen are below 30 percent, offering a major opportunity for global mobile firms battling saturated developed markets and falling call tariffs, analysts say.
Reliance Communications has been looking at some emerging market assets since its deal with MTN fell through, said one banking source with knowledge of the talks.
They are in preliminary stages of evaluating the deal, he said on Tuesday, and was yet to appoint merchant bankers.
Another source also said the talks were underway.
A spokesman for Reliance Communications declined to comment.
Zain said last month it was reviewing a possible sale of its African operations -- minus Morocco and Sudan -- after French media and telecoms giant Vivendi called off talks to buy a majority stake in the African business.
Zain's chief executive told Kuwait daily newspaper Al-Rai the firm was in talks with three major telcos, including one from India, to sell all or part of its Africa operations.
The Times of India newspaper said Zain's African operations were valued at $10 billion.
Shares in Reliance Communications, which the market values at about $10 billion, were up 2.7 percent by 3:54 a.m. EDT. The main Mumbai market .BSESN was up 1.8 percent.
Billionaire Anil Ambani, who took over as Reliance Communications chief in 2006 after a split with his elder brother Mukesh, has been looking for acquisitions to expand operations.
Ambani lost out to Vodafone in bidding for Hutch Essar in 2007, the then fourth-largest cellular operator in India, and last year withdrew from stake-swapping talks with MTN after a claim on Reliance Communication's shares by Mukesh.
While analysts say Zain's African operations will be a strategic fit for Reliance, the Indian firm will have to nurse its stretched financials and tread carefully over a feud between the Ambani brothers.
Reliance, predominantly a CDMA operator, earlier this year spent $2 billion to expand its network on the popular GSM platform, which has been an overhang on its profits.
Reliance, which already owns telecoms firm Anupam Global Soft in Uganda, may also face competition from UAE's Etisalat ETEL.AD, which has previously said it is keen to buy a majority stake in Zain.
Zain, which is undergoing a strategic review and is advised by UBS, plans an extraordinary general meeting on August 31 when shareholders will be asked to vote on amending its ownership restrictions -- a move that could pave the way for selling a large stake.
(Additional reporting by Gugulakhe Lourie in JOHANNESBURG)
(Editing by Ranjit Gangadharan & Ian Geoghegan)