Tesco seeks to buy O2's stake in Tesco Mobile and secure deal with Hutchison for renting capacity

Tesco is planning to expand into the UK mobile business following a failed attempt by Hutchison to takeover O2. Since 2003, the supermarket chain and O2 own 50% each in Tesco mobile, a mobile virtual network operator in the UK. Tesco is now seeking a deal to own the entire virtual network company to increase sales outside the tough groceries market.

Apart from buying the stake it already doesn't own, Tesco wants to enter into a long-term contract with Hutchison for renting its capacity from the merged Three and O2 networks. This is because Tesco Mobile does not own its own network infrastructure and instead relies on others by renting it.

A spokesman at the UK supermarket chain said: "Tesco is an interested party in the merger review process. It is important that any landscape created by the merger process allows challenger brands, such as Tesco Mobile, to deliver the best possible services for UK customers, and champions consumer choice."

It is understood that Tesco revealed these plans at a closed Brussels competition hearing that was held to discuss the £10.25bn (€13.25bn, $14.53bn) Hutchison-O2 deal. While Tesco Mobile currently serves about 4.5 million users, the potential deal with O2 could cost Tesco up to £300m, according to estimates from a few sources.

Working in favour of Tesco is the understanding that Hutchison too would be interested in allowing O2 to sell its stake in Tesco Mobile in order to help convince the competition watchdogs and get approvals for its own takeover. According to a prediction by the European Commission, mobile users are feared to spend 6% more if mobile network Three and O2 merge. They, however, predicted that this figure would fall to 1% if Tesco mobile would stand to become independent.

Apart from Tesco, many other mobile operators were present at the Brussels hearing. These included representatives from BT, Vodafone, Sky, Virgin Media, Dixons Carphone, TalkTalk, UK Broadband and the Iliad, a French mobile operator. It is understood that they all had their own proposals to present. For instance, UK Broadband apparently said it would like to tie-up with Hutchison to create a new national mobile network and proposed building its own infrastructure in certain cities while renting it from O2 and Three in a few other cities.

Hutchison is understood to have, however, made it clear that it is willing to sell only 30% of the capacity of the combined Three-O2 network to retail rivals through a long-term deal. It is expected to have a follow-up meeting with officials from the competition watchdogs on 10 March to discuss the deals it intends to offer to the market, according to The Telegraph.