Vodafone, Three to merge UK mobile operations

There is no cash consideration involved in the deal. Vodafone and Three UK will contribute with differential debt amounts at completion of the transaction, which will see Vodafone own 51% and Hong Kong-based CK Hutchison own the rest.

The combined business is expected to reach over 99% UK population coverage with a 5G standalone network by 2034.

The merged company plans to invest £11bn in the UK over 10 years "to create one of Europe's most advanced standalone 5G networks, in full support of UK Government targets".

Vodafone chief executive Margherita Della Valle said the merger, due to complete before the end of 2024, is "great for customers, great for the country and great for competition”.

She continued: "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."

At 1140 BST, Vodafone shares were up 3.3% at 74.84p.

Victoria Scholar, head of investment at Interactive Investor, said: "The tie-up would create the largest telecommunications operator in the UK with 27 million customers, knocking BT-owned EE off the top spot. CK Hutchison said the merger will deliver up an economic benefit of up to £5 billion per year by 2030 while Vodafone estimates there will be substantial efficiencies of more than £700 million of the annual cost from the deal. Vodafone also said the deal has a net present value of over £7 billion.

"However first the merger needs to secure regulatory approval, which could be a tall order given the likely concerns over diminished competition and consumer choice. In 2016, the UK and European regulators blocked a takeover of O2 by Three, citing concerns about higher prices. However, Vodafone’s new CEO Margherita Della Valle insists this deal will be ‘great for competition.’"

Paolo Pescatore, analyst at PP Foresight, said: "A marriage of convenience makes sense. Scale is key to help lower costs and improve margins. It will take years before we see the real fruits of this deal come to fruition. The question is, can the UK wait that long? However, convergence still remains the achilles heel if this does get over the line. It would create a mobile champion that could increase competition in the wholesale segment of the market and become a partner of choice for MVNOs.

"Having said this, Ofcom recognises the challenges of the UK mobile market and the need for scale. Convincing the CMA will be the real test. Current investment levels are not sustainable in the longer term.

"The UK telco market is now polarised with two vertically integrated telcos at one end and two subscale mobile operators at the other.

"Concessions on spectrum will have to be made and the entity will have to provide solutions on areas like network sharing, rather than create another problem."