MADRID - Masmovil's 1.99 billion euro ($2.38 billion) takeover of Spanish telecoms rival Euskaltel has won state approval, government sources said on Wednesday.

The friendly merger, which received the greenlight from Spain's competition watchdog last week but still needs final regulatory approval, would reinforce Masmovil's position as the fourth-largest operator in Spain's crowded telecoms sector. 

Euskaltel was not immediately available for comment. Masmovil, which is owned by private equity funds KKR, Providence and Cinven, declined to comment.

Euskaltel's major shareholders Zegona, Kutxabank and Corporacion Financiera Alba - which own 52.32% of Euskaltel - agreed in March to accept the offer of 11.17 euros per share, a 16.48% premium at the time. 

Spain boasts Europe's most advanced fibre network, but its telecom sector has suffered from market fragmentation and high overheads, with margins shrinking and debt rising year by year. 

Spain's progressive coalition government has prioritised the development of 5G mobile data in its post-pandemic recovery strategy, earmarking nearly 30% of the 140 billion euros ($171 billion) it will receive in EU funds to a digitalisation plan. ($1 = 0.8371 euros)

(Reporting by Belen Carreno and Clara-Laeila Laudette; additional reporting by Emma Pinedo; editing by Jes?s Aguado and Jason Neely) ((Clara-Laeila.Laudette@thomsonreuters.com;))