Telefonica has announced today that it will sell its O2 Ireland mobile business to Three owner Hutchison Whampoa for €850 million (£725m).

The deal, which is subject to regulatory approval, will take Three's market share in Ireland to 37.5 percent and bring subscriber numbers to 2 million active users.

Hutchison Whampoa said the deal will give Three Ireland the scale and financial strength necessary to compete more aggressively in the market, and launch a 4G/LTE network over the next few years.

“Increasing access to high-quality high-speed networks for Irish businesses and consumers is an essential part of our national economic recovery. This deal will allow significant investment to be made in building a state of the art network,” said Robert Finnegan, CEO of Three Ireland.

“The combined network will also deliver very real benefits to customers outside the major urban areas as the increased scale will allow Three to extend its rural network investment programme beyond 2014.”

The deal is a further attempt by Telefonica to reduce its massive debt burden of €52 billion. The company has already sold several of its non-core operations, including a 40 percent stake in its Central American operations for $500 million in April.

Telefonica also recently sold its UK broadband arm to BSkyB for £180 million. It has stated its aim to reach a net debt level below €47 billion by the end of 2013.

Under the terms of the O2 Ireland deal, Telefonica will receive €780 million in cash upon completion. An additional deferred payment of €70 million is dependent on whether certain financial targets are achieved.

O2 Ireland generated €136 million of revenue in the first quarter of 2013 – lower than any of Telefonica's other European businesses, and down 12 percent year-on-year.