Mobile operator Vodafone is reportedly in talks to merge its UK operations with Three UK, in another consolidation of the telecoms market in the UK.

The Financial Times, citing people with direct knowledge of the matter, reported the move, but the exact structure under discussion is not clear at the time of writing.

If this merger talks does result in a tie up of the two mobile operations, it is likely to face significant regulatory scrutiny – not least the fact that Three UK is owned by China-based CK Hutchison Holdings. Spectrum holdings are also likely to be considered as well.

Merger talk

Vodafone has declined to comment on the matter, and Three UK is also not responding to media requests.

But the tie up talks come amid pressure on Vodafone from Europe’s largest activist fund Cevian Capital to simplify its portfolio, enhance its strategy in key markets and boost returns, Reuters reported.

Chief Executive Nick Read had reportedly said in February the company 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 time – 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 espicially competitive, with four big name operators, EE, Vodafone, O2 and Three UK competing in the market.

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

Then in 2021 O2 merged with Virgin Media, that saw the combination of Virgin Media’s broadband, TV, mobile and landline services with the mobile operations of O2.

Industry reaction

The news that Vodafone and Three UK could potentially merging their UK operations drew a response from industry watchers, who pointed to the existing partnership between the two in Australia.

“Confirmation of talks between Vodafone and Three in the UK would come as no surprise,” noted Kester Mann, director, consumer and connectivity at CCS Insight.

“Three has talked up consolidation for years; Vodafone is under shareholder pressure to strike deals,” said Mann. “Both need greater scale to compete with BT and Virgin Media O2 in the competitive UK market.”

“A few years ago, a tie-up between Vodafone and Three would have felt like a unnatural pairing. But in recent times, Vodafone has taken on more of a challenger role, notably evidenced by its launch of speed-tiered unlimited data tariffs,” said Mann. “Three’s traditional focus is on market disruption and providing value for money, so their cultures may not now be too far apart. Additionally, the two companies have joined forces before, having merged operations in Australia a few years ago.

“Regulation would prove a significant hurdle to any deal. This is because it would instantly create a new market leader based on mobile customers and own a vast trove of 5G spectrum,” Mann concluded. “Some concessions would almost certainly be necessary.

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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