Bharti Airtel had said in February 2019 its Airtel Networks Kenya unit had agreed to buy Telkom Kenya, the East African nation's smallest operator in which the state still has a 40% shareholding, after a majority stake was sold in 2007.
The deal, whose terms have never been disclosed, would have created a stronger challenger for Safaricom, which controls more than 60% of Kenya's mobile subscriptions market.
"Telkom has opted to adopt an alternative strategic direction and will no longer be pursuing the proposed joint venture transaction," Telkom Kenya said in a statement, adding that the decision had been agreed with Airtel Kenya.
Besides the challenges of securing the required approvals for the deal which it did not elaborate upon, it also cited opportunities presented by growing demand for internet services on the back of the coronavirus crisis, which has forced many to work and learn from home.
Among the hurdles the company faced in getting the deal approved include fierce employee opposition to a move to lay off some workers in July last year.
The intention to cut staff has now been taken off the table, Telkom said, after the decision not to merge the two operators.
Telkom, which competes on lower prices for broadband, launched the world's first commercial internet to rural areas using balloons last month, in partnership with Alphabet's Loon.
(Editing by Emelia Sithole-Matarise)
By Duncan Miriri