Vodafone confirms merger talks with Three

Vodafone has confirmed it is in talks with CK Hutchison over a merger of its business with UK mobile operator Three.

The British group said that the merger would aid in the acceleration of 5G roll-out to the country while expanding broadband connectivity. 

The merged entity would be 51% owned by Vodafone, with Hutchison owning the remaining 49%. There would be no cash consideration paid, and the shares would be achieved through differential leverage contribution. 

The new business would combine Britain’s third and fourth-largest networks to create the country’s biggest operator with 27 million customers. This would make it larger than both BT and Virgin Media O2 in terms of subscriber base. The key difference would be that Vodafone-Three does not currently offer a pay TV offering in the UK, though Vodafone does operate a TV service in countries including Germany and Spain. 

Vodafone has long been pursuing mergers with its rivals in order to raise capital for network expansion. 

Announcing the merger plans, a spokesperson for Vodafone said: “As Ofcom has identified, some operators in the UK – Vodafone UK and Three UK – lack the necessary scale to earn their cost of capital. By combining our businesses, Vodafone UK and Three UK will gain the necessary scale to be able to accelerate the rollout of full 5G in the UK and expand broadband connectivity to rural communities and small businesses.

“The merged business would challenge the two already consolidated players for all UK customers and bring benefits through competitively priced access to a third reliable, high quality, and secure 5G network throughout the UK.”

The move comes months after Ofcom dropped its long-held stance that a merger between any of the UK’s big four mobile operators should be blocked at all costs. 

Commenting on the prospective tie-up, Kester Mann, director of consumer and connectivity at research firm CCS Insight said: “The leading motivation to join forces is scale. In telecommunications, the most successful companies tend to be the largest; bulking up would offer many synergies and cost-saving opportunities. Under the status quo, it’s hard to see either operator growing enough organically to get close to challenging BT and Virgin Media O2 for size in the UK. 

“Not so long ago, a tie-up between Vodafone and Three would have felt like an unnatural pairing. But in recent times, Vodafone has taken on more of a challenger role in its home market, so the two operators’ strategies may no longer be too far apart. “