(Refiled to remove extraneous text characters ".2" in paragraph 3)

* Will have to sell up to 30 pct of merged unit's network capacity

* Telefonica's German deal could be set similar conditions

By Foo Yun Chee

BRUSSELS, May 28 (Reuters) - Hong Kong-based Hutchison Whampoa 0013.HK got the approval of the European Union's competition authority on Wednesday for its $1 billion bid for Telefonica's TEF.MC Irish mobile business in a case that could set the regulatory tone for Telefonica's bigger pending German merger deal.

Approval of the Hutchison takeover and Telefonica Deutschland's O2Dn.DE $12 billion bid for Dutch firm KPN's

KPN.AS German subsidiary E-Plus, could open the way to further consolidation in a sector struggling with its fifth year of declining revenue and the need to upgrade networks for high-speed broadband.

Hutchison, controlled by Asia's richest man, Li Ka-shing, is strengthening its position in Europe, where it operates in six countries. It already has the fourth-largest mobile network in Ireland with 3 Ireland and is now adding the second-biggest operator O2 Ireland, though it will remain behind market leader Vodafone VOD.L .

The European Commission said approval was conditional on Hutchison selling up to 30 percent of the merged company's network capacity to two mobile virtual network operators (MVNOs), which use the networks of other companies to offer telecoms services.

Sources have told Reuters that Hutchison is now in talks with European cable operator Liberty Global LBTYA.O to help the U.S.-listed company become an MVNO in Ireland.

Hutchison will also have to divest five blocks of mobile frequencies in the 900 MHz, 1800 MHz and 2100 MHz bands at a later stage to the MVNOs should they aim to set up their own network, and continue a network-sharing agreement with Ireland's third-biggest operator, eircom.

"It is essential that healthy competition is preserved in mobile telecoms markets. The commitments offered by Hutchison 3G ensure that Irish consumers will continue to enjoy these benefits," EU Competition Commissioner Joaquin Almunia said.

Hutchison's 3 Ireland welcomed the EU clearance.

"It leaves 3 optimally positioned to become the No.1 player by providing the best value and service to our customers," Chief Executive Robert Finnegan said in a statement.

Reuters reported on May 16 that the deal would be cleared by the European Commission with conditions. ID:nL6N0O23QJ

Almunia, who is now examining Telefonica's O2Dn.DE bid to buy E-Plus, told reporters that he would probably decide on the case before the Commission's July 10 deadline.

The outcome could mirror that of the Hutchison deal, telecoms industry lawyer David Cantor said.

"That the Commission does not appear to have insisted on the presence of a fourth mobile network operator (MNO) from day one suggests a similar solution may be found in Germany," he said.

Sources familiar with the matter have said Telefonica Deutschland is now talking to several German MVNOs on leasing up to 30 percent of the network capacity of the merged company, among other concessions. ID:nL6N0N72QC

(Editing by David Goodman, Greg Mahlich)

((foo.yunchee@thomsonreuters.com)(+32 2 287 6844)(Reuters Messaging: foo.yunchee.thomsonreuters.com@reuters.net))

Keywords: HUTCHISON WHAM TELEFONICA/