The European Commission is to open an in-depth investigation into the proposed €850 million takeover of O2 by rival mobile network Three Ireland.

In June, Three agreed to buy O2 for €780 million in cash, with a further €70 million on condition that it reaches certain financial targets.

However, the size of both Three's parent, the multinational Hutchison Whampoa, and O2's owner, Spanish group Telefónica, means the deal must get the approval of the EU's competition directorate before it can go ahead. The deal will increase Hutchison's customer numbers in Ireland to about 2 million and its wireless market share to 37.5 per cent.

Three Ireland yesterday said the decision by the commission to investigate the takeover was “not unexpected” in the context of previous statements by the commission that it would take a close look at in-country telecoms mergers.

Three said it believes the merger of O2 Ireland’s business with Three Ireland will be “good for both competition and consumers in Ireland” adding it was confident the merger will be approved by the commission.

Hutchison Whampoa, the biggest Asian investor in European wireless assets, had to make concessions to EU regulators last year before it won approval to take over Orange in Austria, a transaction that also reduced the number of phone operators. It had to offer radio spectrum and network access to rivals to alleviate antitrust concerns.

The EU’s initial investigation into the Irish deal indicated that shrinking the number of operators to three from four may increase the likelihood that the companies would co-ordinate their behaviour and increase prices, the Brussels-based authority said.

"The transaction would combine two of the four mobile networks in Ireland and create a player of similar size to the currently largest operator, Vodafone. "

The commission said it will rule on the deal by March 24th.