Macquarie is in exclusive talks with O2 over Airwave, its secure digital radio network, in a deal that is expected to be worth up to £2 billion, The Times has learnt.

The acquisitive Australian bank is understood to have secured a period of exclusivity with O2’s owner, Telefónica, with a view to thrashing out a deal. However, sources cautioned that the situation was fluid and that any deal could yet falter.

Up to ten other competitors are known to have looked at the Airwave business, which analysts believe will fetch up to £2 billion. BT, its former owner, is understood to have been among them.

The proposed deal for the network, which is used by Britain’s emergency services, comes just days after Macquarie snapped up the wireless arm of National Grid.

The bank completed on Tuesday on a £2 billion deal to acquire National Grid Wireless, which it aims to merge with its Arqiva broadcast business to create the UK’s sole transmission broadcast supplier.

Airwave, which secured earnings before interest, tax, depreciation and amortisation of £90 million in 2006, went on the blocks late last year after Telefonica opted to cash in on the current feverish demand for infrastructure-style assets.

The business, with more than 150,000 users, has 150 separate contracts including a £2.9 billion 19-year contract signed with the Home Office in 2000.

A question mark over the renewal of that contract initally looked like stalling the sale process, which is being handled by JP Morgan. As with National Grid, the Airwave business offers recurring revenue streams in the form of its long-term contracts with the Government and other parties.

Competitors for the Airwave business — which has come under fire from health campaigners concerned about its Tetra masts — included infrastructure and private equity players. BT is also understood to have looked over it. Airwave originally began life as part of BT, being created as the result of a Government contract the company won in 2000. It was later sold off.

O2 spent about £800 million creating Airwave’s network of more than 3,000 masts, covering 99 per cent of mainland Britain.

The decision to review the business came as a surprise. Just prior to announcing it, O2 said that Airwave “remains a valuable part of the group”. It had talked about the business being extended abroad after its acquisition by Telefonica.

A spokesman for O2 said that the group could not comment on rumour or speculation.

Who’s who

National Grid Wireless
–– Provides network infrastructure
–– Contracts include O2, Vodafone and T-Mobile
–– Operating profit in year to March 2006 of £70m
O2 Airwave
–– Secure digital radio network
–– More than 3,000 masts
–– 150 contracts, including £2.9bn deal with Home Office

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive