UPDATE 2-Telefonica smooths E-Plus purchase with network deal
* Telefonica will give Drillisch access to 20 pct of network
* Deal is part of conditions for 8.6 bln euro KPN deal
* European Commission approval expected next week (Rewrites, adds sources, background, updates shares)
FRANKFURT, June 25 (Reuters) - Telefonica Deutschland smoothed the way for regulatory clearance of its takeover of KPN's German business E-Plus on Wednesday by agreeing to open its network to small rival Drillisch .
Telefonica Deutschland, the German arm of Spain's Telefonica , said it would grant Drillisch access to a fifth of the combined network of Telefonica and E-Plus and let Drillisch buy a further 10 percent of its German network capacity.
Sources told Reuters last week that EU antitrust regulators would approve Telefonica's 8.6 billion euro ($11.7 billion) acquisition of E-Plus after it promised to grant rivals access to its network.
Drillisch is a so-called mobile virtual network operator (MVNO). Such companies rent access to bigger rival networks and tend to sell cheaper mobile plans, often without a long-term contract.
Striking a deal with MVNOs was one of the main conditions that the European Commission had set for approving the deal.
Sources have said Telefonica initially hoped to clinch deals with MVNOs Freenet and United Internet, but two sources said on Wednesday it was no longer seeking a deal with them.
"With this deal, approval from the European Commission for the E-Plus takeover should not be a problem," said one person familiar with the negotiations.
United Internet and Telefonica Deutschland declined to comment on the status of the talks.
Freenet said in a statement that an existing deal on using Telefonica's network and expiring in 2025 would remain in place, without commenting further.
The commission's decision is expected next week and the possibility of the deal going ahead has already created dismay in the German cartel office, which opposes a reduction in the number of German mobile network operators to three from four.
People with knowledge of the matter said the German regulator had written to European Competition Commissioner Joaquin Almunia and fellow agencies across Europe, warning against the merger.
Telefonica Deutschland shares were flat by 1100 GMT. Drillisch shares were up 4.2 percent while United Internet shares were down 6 percent. Freenet was down 0.8 percent. ($1 = 0.7355 Euros) (Reporting by Harro ten Wolde, Peter Maushagen and Foo Yun Chee; additional reporting by Christoph Steitz; editing by Erica Billingham and Tom Pfeiffer)