UPDATE 1-Telkom Kenya to merge some operations with Airtel Kenya -source

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NAIROBI, April 10 (Reuters) - Telkom Kenya and Bharti Airtel's local unit plan to merge some operations as a first step as Telkom plans to acquire all of Airtel's Kenyan assets eventually, a source at the industry regulator said on Tuesday.

The two operators have a combined 23 percent of Kenya's 41 million mobile subscribers, but have long struggled to compete with industry leader Safaricom, which has 71.9 percent market share.

Telkom Kenya plans to take over all of Airtel Kenya but it has yet to decide on a structure, the source said.

"They are yet to make a formal application (to the regulator) disclosing all the details," the source told Reuters.

Telkom Kenya declined to comment and Airtel Kenya had no immediate comment.

Industry executives said that if a deal to acquire all of Airtel Kenya's assets goes through, it would help both firms make significant savings and acquire the scale to compete effectively with Safaricom.

"This is a cold, calculated business strategy," said a telecoms executive who did not wish to be named.

(Reporting by Duncan Miriri; Editing by Susan Fenton)