THE mobile operator O2 is the front-runner to secure a £100 million-a-year contract with 3 to provide coverage in parts of the country where its rival’s third-generation mobile network does not reach.

O2, owned by Telefónica, of Spain, was head to head with Orange for the lucrative “roaming” contract.

Industry insiders believe that 3 will announce shortly that O2 has pushed aside its rivals to renew its current deal with 3.

The initial roaming agreement, which expires at the end of this year, was struck after the 3G auction of 2000.

In an effort to help 3 to establish itself, Ofcom, the regulator, stipulated that other players should offer the videophone business, part of Hong Kong’s Hutchison Whampoa, the ability to connect calls in areas where its network did not reach.

Although 3 is now an established player, with 88 per cent 3G coverage, it is commercially more efficient for the company to offer coverage in more sparsely populated areas through a tie-up with another network.

Though neither side has disclosed the terms of the existing deal, under which O2 secures a fee for each call carried, it is understood to be worth about £100 million each year.

3, which pioneered 3G technology in Britain, put a contract for the work out to tender last year. It invited Vodafone, Orange, the German-owned T-Mobile and O2 to bid, although T-Mobile withdrew from the process early on.

The work offers an easy revenue stream to the mobile players in what is a fiercely competitive marketplace.

Today there are nine leading mobile players battling to woo and retain customers and the entry of 3, with its aggressive price tariffs, has increased the pressure. Last week Orange, the French-owned mobile player, announced plans to cut 15 per cent of its staff in an effort to compete better.

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