State-backed funds from China, Singapore and the Middle East are reportedly in discussions to pump “billions of pounds” into a merger between Hutchison Whampoa’s 3 UK and Telefonica-owned O2 in exchange for a stake of up to 30 per cent.

It’s the latest twist in an unfolding drama of potential consolidation in the UK telecoms market since BT, the former state monopoly, announced in mid-December it was in exclusive talks to buy EE, the UK’s largest mobile operator.

Barely more than a week ago, Hutchison confirmed speculation it was in exclusive talks with Telefonica to acquire O2 UK for £10.25 billion.

The deal on the table was that Hutchison Whampoa would pay £9.25 billion in cash to take control of O2, and a further £1 billion in deferred payments when the combined business hits certain cash flow targets.

The Telegraph now reports that a variety of sovereign wealth funds, including China Investment Corporation, Singapore’s Temasek and GIC – as well as “one of Qatar’s big government-sponsored vehicles” – are in talks to provide a fair chunk of the financing.

The newspaper adds that the bulk of existing financing that’s already arranged for O2’s takeover will come from a £6 billion loan provided by HSBC and a consortium of other lenders, which include Bank of America Merrill Lynch.

As well as perhaps providing a stronger competitor to a merged BT/EE entity – should that deal go ahead – Telefonica will welcome the cash windfall to reduce its huge debt pile. Synergies, too, are on the cards. According to Enders Analysis, O2 and 3 are expected to save £250 million annually by only having to invest in one network.

Not that the tie-up is plain sailing, even if the financing is in place. The merger of 3 and O2 would create the largest mobile operator in the UK, and so alert anti-trust authorities.

In a move that might help convince competition watchdogs that a Hutchison Whampoa takeover of O2 is not a bad thing, satellite broadcaster Sky recently announced it would launch its own mobile network next year after signing a wholesale deal with Telefonica’s UK mobile subsidiary.

Sky’s entry into mobile is in anticipation of BT’s big-time return to the UK mobile consumer market via EE.