Telecoms giants Vodafone and Three have agreed a deal to merge their UK businesses, creating a £15 billion behemoth that will be the country’s biggest mobile network operator.
Vodafone and Three’s parent company CK Hutchison Group Telecom Holdings will create a new entity, in which Vodafone will hold a 51% stake and CK Hutchison 49%.
However, the deal could still be scuppered by regulators, after a previous merger between Three and O2 was blocked by the Competition watchdog.
The merger comes as mobile operators work to roll out 5G across the nation. The new business said it will invest £11 billion over the next five years to create a new 5G network.
Margherita Della Valle, Vodafone group chief executive, said the deal would lead to better service for customers. “The merger is great for customers, great for the country and great for competition.
“It’s transformative as it will create a best-in-class – indeed best in Europe – 5G network, offering customers a superior experience.
“As a country, the UK will benefit from the creation of a sustainable, strongly competitive third scaled operator – with a clear £11 billion network investment plan – driving growth, employment and innovation. For Vodafone, this transaction is a game changer in our home market. This is a vote of confidence in the UK and its ambitions to be a centre for future technology.”
Vodafone claimed that the merger could be worth as much as £5 billion per year in “economic benefit” by 2030, as it will allow the UK’s 5G network to get up and running more quickly.
If it receives regulatory approval, the deal should close before the end of 2024. But telecoms analyst Paolo Pescatore of PP Foresight warned that competition approval would not be guaranteed. In 2016, the Competition and Markets Authority blocked a takeover of O2 by Three over concerns about higher prices.
“This will be a hard sale given that both companies have been outperforming the market for the last year or so,” he said. “Let’s see if the authorities have a change of heart. Both parties need to demonstrate that this is genuinely in the interest of UK plc, the economy, and consumers for it to have a chance of getting over the line.”
Vodafone set it had not yet approached the CMA about the new deal but planned to engage with the regulator “over the coming weeks.”
Three UK CEO Robert Finnegan hit out at concerns the watdog would block the deal on competition grounds.
“If nothing changes then nothing will change the quality of the infrastructure in the UK,” he said.
“That will be a sad state of affairs for the country and for consumers.”
The announcement of the long-anticipated mega-merger comes just weeks after Vodafone announced plans to cut thousands of jobs across the globe. Vodafone hinted that further job cuts could come as a result of the deal with Three but could not confirm numbers.
Alexandra Brodie, telecoms partner at the law firm Gowling WLG, said: “This is timely news, given Vodafone’s most recent trading update which painted a challenging picture for the operator surrounding its imminent need to embark on job cuts to boost returns on capital employed amid increasing inflation and interest rates.
“Indeed, the merger is critical for the company in light of its objectives around building the infrastructure of the future to help catalyse the digital economy. That entails significant investment in 5G roll out and expensive future-proofing projects, like the laying out of undersea internet cables which traverse areas of high geopolitical tensions.”
Under the terms of the deal, Vodafone will own a 51% stake in the combined entity, with the right to acquire more of Three’s share after three years. Vodafone said they expected the deal to be finalised in 2024, until which time the two businesses would keep their branding and individal pricing for customer contracts.
