Vodafone Speeds Up Talks To Merge With Rival Three

Vodafone is accelerating plans to merge its operations with telecoms rival Three, it announced on Monday.

In a statement to the London Stock Exchange Vodafone says that it is in talks with Three owner CK Hutchison Holdings about merging the two companies’ operations.

“The envisaged transaction would involve both companies combining their UK businesses, with Vodafone owning 51% and our partner CK Hutchison owning 49% of the combined business,” Vodafone says.

The 5G Revolution

Explaining the reasoning behind the move, the FTSE 100 company commented that “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.”

Only a handful of telecoms companies are involved in Britain’s digital revolution, a phenomenon which has created concerns that consumers could lose out. By combining their operations Vodafone and Three will make for a more competitive market, the former says.

“The conditions to ensure thriving competition in the market need to be nurtured, otherwise the UK is at risk of losing the opportunity to be a 5G leader,” Vodafone notes.

“As [regulator] Ofcom has identified, some operators in the UK — Vodafone UK and Three UK — lack the necessary scale to earn their cost of capital,” it adds.

Consolidation Heats Up

Vodafone said the enlarged 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.”

Major consolidation in recent years saw fellow FTSE 100 business BT Group and EE merge in 2016. This was followed by the tie-up of Virgin Media and O2 last year.

Vodafone and Three’s proposed merger will create the UK’s largest mobile phone service provider if talks are successful and the deal passes regulatory hurdles.

A View From The City

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, notes that “setting up and maintaining networks is a hugely expensive business.”

She comments that “as government have a track record of raising prices more than expected when companies bid to use chunks of the spectrum, Vodafone has recognised it needs to bulk up with much more power to be able to accelerate the rollout of 5G and expand connectivity to rural communities and small businesses.”

Furthermore, Streeter notes that “Vodafone has long been focused on rolling out broadband, fixed line and TV services across its European markets, since customer retention is significantly better among those taking multiple products, and a successful 5G rollout will be crucial to that strategy.”

Vodafone’s share price was last 2.2% higher at 103.3p.