MILAN, May 29 (Reuters) - Telecom Italia (TIM) and state lender...

MILAN, May 29 (Reuters) - Telecom Italia (TIM) and state lender CDP are expected to reach preliminary agreement on Sunday to merge the phone group's fixed network assets with those of state-backed rival broadband firm Open Fiber, three sources close to the matter said.

The move will pave the way for a single broadband network, as TIM TLIT.MI CEO Pietro Labriola irons out a turnaround plan focused on a full-blown split of the group's landline grid from service operations.

The boards of directors of TIM and CDP are due to meet on Sunday to approve a framework agreement, with the aim of negotiating a binding deal on a network tie-up with Open Fiber by October, one of the sources said.

Under the framework agreement, CDP, which is TIM's second largest investor with a 10% stake and holds a 60% stake in Open Fiber, would control the combined network entity, the sources added.

Italy is keen to create a single broadband network champion to avoid duplicating investments and to speed up a fibre optic roll-out as well promote digitalisation of the economy.

Under pressure for years in its domestic market, debt-laden TIM plans to hive off its landline grid, an asset for which analysts pegged valuations at between 15 and 20 billion euros ($16 billion - $21.45 billion).

While the final structure of the deal with Open Fiber has not been decided, options under discussion include an outright sale of TIM's landline grid, two separate sources have said.

The framework agreement has the backing of infrastructure funds Macquarie (MQG) and KKR KKR.N , which hold minority stakes in Open Fiber and in the TIM network respectively, the sources said.

KKR, which spent 1.8 billion euros to buy a 37.5% stake in TIM's last mile network unit FiberCop and attempted a 10.8 billion euro takeover bid for TIM, has previously expressed concerns over regulatory and valuation issues related to the single network plan.