Vodafone has officially confirmed it is in talks with Three UK over a possible merger, in what could be another consolidation of the UK’s mobile telecoms market.

Vodafone on Monday finally confirmed the merger talks, after noting “the recent press speculation in relation to Vodafone UK and Three UK.”

It was back in May this year, when it was first reported by the Financial Times that Vodafone was in talks to merge its UK operations with Three UK.

UK competition

Both Vodafone and Three at the time declined to comment, but it was noted that if the merger talk resulted in a tie up, it would likely to face significant regulatory scrutiny – not least because of the fact that Three UK is owned by China-based CK Hutchison Holdings.

Spectrum holdings and market competition would also be considered by regulators.

It came after Vodafone’s chief executive Nick Read reportedly said in February the operator was pursuing mergers with rivals in multiple European markets, spurred on by more favourable signals from regulators who have realised the value of network investment during the Covid-19 pandemic.

Vodafone was (at one stage) the world’s biggest mobile operator, before it sold off its hugely valuable 45 percent stake in Verizon Wireless in the United States.

But it has struggled in its traditional strongholds of Europe, amid intense competition, difficult regulatory environments and falling legacy revenue.

The UK is especially competitive, with four big name operators, EE, O2, Vodafone and Three UK going head to head in the market.

Merger talks

Now Vodafone has confirmed it is talking with Three UK.

“Vodafone confirms that it is in discussions with CK Hutchison Holdings Limited (“CK Hutchison”) in relation to a possible combination of Vodafone UK and Three UK,” Vodafone said.

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

Vodafone is traded publicly in the UK, and has a market cap of approximately £28.7 billion.

CK Hutchison has a market cap of about $21 billion (but it also controls other assets).

Vodafone said the relative ownership would be achieved through a differential leverage contribution at closing, and no cash consideration would be paid.

The thinking behind the merger, is that by combining its businesses, Vodafone UK and Three UK would 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.

UK consolidation

There has been some notable consolidation in the UK market over the past decade.

EE it should be remembered, was itself a merger between T-Mobile and France Telecom’s acquired and then spun out again ‘Orange’ mobile operation.

EE was acquired by former UK telecoms incumbent BT Group in January 2016, uniting the UK’s biggest fixed line and mobile providers.

Three UK meanwhile had also sought to merge with rival operator O2 back in 2016, with a £10.25 billion deal for O2.

That deal however was blocked by regulators in May 2016, after both the UK Competitions and Markets Authority (CMA) and Ofcom, as well as the EC opposed the transaction.

That tie up was blocked after none of the remedies offered satisfied “serious” concerns about the impact on the mobile sector at the time.

But four years later in 2020, regulators overturned that decision, after O2 merged with Virgin Media in 2021, in a move that combined Virgin Media’s broadband, TV, mobile and landline services with the mobile operations of O2.

Tom Jowitt

Tom Jowitt is a leading British tech freelancer and long standing contributor to Silicon UK. He is also a bit of a Lord of the Rings nut...

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