Mr Niel is best known for his ownership of the French telecoms giant Iliad, which he founded in 1990 and includes brands such as Free Mobile, the fourth biggest mobile operator in France. He started his business career aged 19 and made his fortune on internet pornography, chat lines and peep shows.
Mr Niel’s move comes after the French raider Patrick Drahi upped his holding in BT to a near 20pc stake in December, prompting fears that he was preparing the ground for a takeover.
Business secretary Kwasi Kwarteng decided to review Mr Drahi’s decision to increase his holding from 12.1pc to 18pc, but opted against intervening in the transaction.
BT is currently in the midst of upgrading the nation’s broadband infrastructure from its copper network to faster and more reliable full-fibre connectivity, while also deploying 5G mobile signals deemed around 100 times faster than 4G.
Nick Read, the Vodafone chief executive, has urged regulators and governments to back a wave of consolidation across the industry after claiming European telecoms companies were suffering from an unsustainable business model that does not allow them to make a fair return on their investment in next generation digital infrastructure.
Mr Read confirmed earlier this year that he has been in consolidation talks with rivals in the UK, Spain, Italy and Portugal, but ruled out any “fire sales”.
The arrival of Mr Niel follows the decision by Etisalat, the Gulf telecoms group led by former Vodafone executive Hatem Dowidar, to take a 10pc stake in Vodafone in May.
Mr Read was already under pressure to accelerate change from the Swedish activist investor Cevian, which called for the board to simplify the business.