Vodafone this week confirmed that it is in talks with Greek player Wind Hellas over a possible merger or acquisition.

In a statement, Vodafone said it has entered into discussions with Wind owner Largo Limited to “explore a potential business combination between Vodafone Greece and Wind Hellas.” However, the UK-based operator pointed out that discussions are at an early stage and there is no certainty as to whether an agreement will be reached.

At present, Cosmote is the Greek market leader with 7.7 million subscribers at the end of June, while Vodafone and Wind have 3.7 million and 2.8 million users respectively. A merger of the two smaller operations would close the gap significantly. However, there is an argument to say that with Greece in its third year of economic crisis, would Vodafone want its investments to become more entrenched in the country?

Yet there may be another element at play here. Both Vodafone and Wind have been put at risk of losing their 900MHz spectrum, after the country’s national regulator, the EETT, issued a proposal for the re-auctioning of GSM spectrum licenses, which are due to expire in 2012. The move is controversial because it is an unusual renewal process, but also because the authority has set reserve prices at more than double the European average.

The obvious conclusion is that the Greek Government wants to use the auction to squeeze as much cash as possible out of the market’s operators in a bid to dig the country out of its financial black hole. A reserve price of €46.6m for each 5MHz block in the 900MHz GSM frequency band has been called “excessive” by one operator.

But one person close to the situation told telecoms.com there are machinations at work to ensure ex-state owned incumbent Cosmote – seen as the only nationalistic choice by Greek citizens – gets its hands on some valuable 900MHz spectrum.

As it stands Cosmote owns 25MHz of 1800MHz spectrum, while Vodafone and Wind hold 20MHz apiece of 900MHz spectrum. It is this 900MHz spectrum that will go under the hammer first. The reallocated spectrum would also be awarded on a technology neutral basis, giving operators the opportunity to deploy 3G or any other technology in the 900 band.