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O2 is set to move into the public Wi-Fi access market, by building its own network of UK hotspots.

The firm is looking to challenge BT in this area and also The Cloud – a firm rumoured to be an acquisition target for another internet service provider, Sky.

O2 said it will use its new Wi-Fi division to bring "truly free" public wireless broadband to the market, since all consumers, not merely its own subscribers, will be able to take advantage.

The firm will initially install 450 hotspots in restaurants, sports stadia and shops, in a bid to freshen up a "stagnant" area, and relieve pressure on its 3G network.

Tim Sefton, New Business Development Director at O2, said the broadband provider was "looking at ways to grow and evolve its business".

He claimed that launch of free public Wi-Fi would be a "market-changing" development.

Earlier this week, O2 announced plans to increase investment levels in its mobile network by 25 per cent.

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