By Foo Yun Chee
BRUSSELS (Reuters) - The European Union antitrust regulator objects to Telefonica's proposed 8.6 billion euro ($11.83 billion) bid for KPN's German unit in its current form, two people familiar with the matter said on Tuesday.
The deal, which will reduce the number of mobile providers in Europe's biggest market from four to three, is crucial for the European telecoms industry, which is keen to build up scale via consolidation and better compete with bigger U.S. peers.
The European Commission's objection to the deal as it stands would likely lead to the offer of concessions from the German unit of Spain's Telefonica.
The Commission, the EU's executive body, opened an in-depth investigation into the deal in December last year, saying it was concerned the takeover would reduce competition in Europe's largest economy and lead to higher prices for consumers.
"The next step is a statement of objections to the companies," said one of the people, referring to a Commission document which sets out the regulator's demands in order for the deal to be approved.
A third source said the Commission will likely send the document to the companies next week.
Commission spokesman for competition policy, Antoine Colombani, declined to comment. Telefonica Deutschland spokesman Albert Fetsch and KPN also declined to comment.
Companies typically offer concessions to allay regulatory concerns.
Hutchison Whampoa secured EU approval two years ago to buy Orange's Austrian unit after promising to help new operators enter the market there.
(Additional reporting by Phil Blenkinsop, Edward Taylor in Frankfurt and Jesus Aguado in Madrid; editing by John O'Donnell)