The Hong Kong-based conglomerate which owns the Port of Felixstowe has entered into exclusive talks to buy the O2 mobile phone network from Spanish group Telefonica.

Hutchison Whampoa is expected to pay around £10billion for O2 which, combined with the Three network which it already owns, will create the UK’s largest mobile phone operator.

BT last month spurned the opportunity to buy O2 – which was known as BT Cellnet before being spun-out of the UK telecoms giant in 2001 – in favour of pursuing a £12.5bn deal to buy EE, the combined Orange and T-Mobile business.

Hutchison, controlled by Hong Kong tycoon Li Ka-Shing, said it had entered talks “over a period of several weeks” to buy O2 for £9.25bn in cash followed by deferred payments of up to £1bn.

Telefonica confirmed the talks, saying the deal marked another step in its transformation process which it said would “allow the company to strengthen its financial flexibility”.

Industry figures from Espirito Santo show EE as currently the biggest of the mobile phone players with 35.2% of the market followed by O2 on 28.5%, but the latter combined with Three’s 8.4% share would see it climb to first place.

Hutchison said the transaction remained subject to due diligence over O2, agreement on terms and signing of agreements, and obtaining the required corporate and regulatory approvals.

A separate statement from Telefonica said: “Telefonica has entered into an exclusivity agreement with Hutchison Whampoa in relation to Hutchison’s potential acquisition of O2 UK, Telefonica’s subsidiary in the United Kingdom, for £10.25bn in cash.”

Telefonica acquired O2 for £17.7bn in 2005. The proposed deal with Hutchison comes as Europe’s telecoms firms jostle to reposition themselves amid a consolidation in the sector, with BT’s move on EE designed to focus on a convergence between fixed and mobile services.

Vodafone, the number three player in the mobile market, has outlined plans to offer broadband services and has been subject to speculation that it has designs on Sky to strengthen its position in the UK and give it access to TV operations in Europe. It has already moved for cable operators in Spain and Germany over the last couple of years.

Mr Li’s move for O2 represents the latest UK acquisition for the tycoon across a range of sectors.

Besides Hutchison Ports UK, which includes Harwich International Port as well as the Port of Felixstowe, his business empire also includes UK Power Networks, the electricity distribution business covering East Anglia, London and the South East, Northumbrian Water, which includes Essex & Suffolk Water, and health and beauty chain Superdrug.

Earlier this week, his Cheung Kong Infrastructure group acquired UK train rolling stock leasing company Eversholt, whose customers including Abellio Greater Anglia, for £2.5bn.