O2 chief executive officer Ronan Dunne is reportedly exploring an £8.2bn management buyout, according to the Telegraph, having been approached by private equity investors.
Dunne has been CEO for eight years, and was previously chief financial officer.
O2 remains bound by an exclusivity agreement with Three’s parent firm, Hutchison Whampoa, until the end of June unless the pair agree to dissolve talks.
According to the newspaper, discussions are in the early stages, with bankers pegging O2’s valuation at £8.2bn, less than the £10.25bn on the table from Three.
An earlier report from Sky News claimed private equity groups including Apax Partners, CVC Capital Partners and KKR were mulling a joint bid to Telefonica.
Mike Fries, chief executive of Virgin Media owner Liberty Global, has also said it would be "strange" if the company didn’t consider a bid for O2.