EUROPEAN regulators have launched an investigation into the bid by Asian telecoms giant Hutchison Whampoa for Telefonica's Irish unit, formerly known as O2 Ireland.
The anti-trust watchdog said in a statement the deal could hamper incumbent telecoms operator Eircom and reduce options for firms looking to market services under their own brands provided by mobile operators.
Its initial investigation into the deal showed that shrinking the number of operators could lead to higher prices and co-ordinated behaviour by the companies involved.
"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 EU said in the statement.
"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.
"The commission also has concerns that the transaction would reduce the merged entity's incentive to continue a network sharing agreement with Eircom, which could hamper Eircom's ability to compete effectively after the merger," it added.
Billionaire Li Ka-shing's Hutchison agreed earlier this year to buy O2 Ireland, the country's second biggest operator for up to €850m.
Responding to the commission's move, Three Ireland acknowledged the statement.
"Three Ireland has had open and constructive discussions with the Commission throughout the first phase of the merger review process," it said.
"It expects to continue to work closely with the commission to obtain clearance for the acquisition," it added.
Three said that the Irish market has suffered for many years from underinvestment in broadband infrastructure as a result of the structure of the market itself.
"The merger with O2 Ireland will give Three Ireland the scale necessary to invest more heavily in its network infrastructure and compete more aggressively as the challenger in the market."
The Irish deal would increase Hutchison's customers in Ireland to about two million and its wireless share to over 37pc, the Hong Kong based firm said.