European competition regulators will investigate whether Hutchison Whampoa's €780m bid for Telefonica's unit in Ireland will reduce competition in the mobile market here, the European Commission has said.
The move will put pressure on Hutchison to offer concessions such as spectrum sales or making it easier for rivals to access its network, to ease the regulatory concerns.
The Commission will also review a much larger deal in Germany in which Telefonica aims to buy smaller rival KPN's E-Plus.
The deals are being viewed by investors and telecom executives as a key test of whether European regulators are softening their stance on mergers in the sector.
If they are cleared without major concessions, experts predict further consolidation to reduce the number of European operators and help the sector return to growth after years of shrinking sales and regulatory pressure.
Hong Kong-based Hutchison Whampoa, controlled by Asia's richest man, Li Ka-shing, announced the €780m offer for Telefonica's O2 Ireland unit in June to strengthen its position in Europe.
It also owns mobile carriers, which market services under the brand name 3, in five other European countries.
Reuters reported last month that the Commission would open an in-depth investigation into the acquisition.
The European Union competition authority, which held a preliminary review of the deal in the last month, said the deal may have a negative impact on rivals and lead to higher prices.
"The Commission has concerns that the transaction would remove an important competitive force and change the merged entity's incentive to exert significant competitive pressure on the remaining competitors," it said in a statement.
The acquisition would quadruple the market share of Hutchison's subsidiary, 3 Ireland, to 37.5%, behind market leader Vodafone.
Hutchison said the decision to open an extended inquiry "does not in any way prejudge the final outcome of the Commission's review" and that it was "confident that the merger will be approved".
The Commission said it would decide by March 24.