Vodafone and Three announce merger to create UKs biggest mobile network

Currently the third and fourth biggest mobile operators, the merger would see the creation of a mobile giant with 27 million customers.

Vodafone and CK Hutchinson, owner of Three UK, announced yesterday that they had reached an agreement to merge their mobile networks, after talks which began last autumn.

The combined group will be majority owned by Vodafone, which will have a 51% share. If the deal is approved by regulators - and it is quite the if - the company will push EE, owned by BT, and Virgin Media O2 into second and third place respectively in the UK mobile services market.

In what has been perceived as a bid to persuade the government and Competitions and Markets Authority (CMA) that the deal is in the public interest, the two groups have pledged to invest £11bn over a decade to create "one of Europe's most advanced standalone 5G networks."

The deal is certainly likely to come under close regulatory scrutiny, and the CMA confirmed yesterday that it will examine the merger, commenting as follows:

"Both Vodafone and Three are key players in the UK communications market - with millions of consumers and many businesses relying on their services - so it's right that the CMA reviews the impact this deal could have on competition."

In 2016 the EU blocked the acquisition of O2 by Three, citing concerns about higher prices and a lack of choice for UK mobile customers. Whilst Ofcom announced a softening of its stance on regulation last year, the fact that Vodafone UK holds a number of government contracts means that in addition to the CMA vetting, the deal will also be scrutinised by ministers under the National Security and Investment Act 2021.

On the prospect of regulatory involvement, Jonathan Cornthwaite, consultant and expert across competition law at Wedlake Bell, commented:

"The announcement of the merger deal between Vodafone and the owner of Three UK has naturally attracted much attention. From the standpoint of UK competition law it is premature to speculate with any degree of certainty on whether the deal is likely to be approved or disapproved by the Competition and Markets Authority ('CMA'), the body in charge of regulating (amongst other things) mergers and acquisitions that impact the UK market. Its decision earlier this year to block Microsoft's intended $69bn takeover of Activision Blizzard has been construed by some pundits as indicating that the Vodafone/Three UK deal might meet the same fate; but it is worth remembering that each case which comes before the CMA is decided entirely on its own merits, and, in any event, that the two deals are in markedly differing markets.

"Nevertheless, one thing can safely be predicted - since the deal (if implemented) would create the UK's biggest mobile network, and since telecommunications is such an important market, the CMA's scrutiny will be long and detailed."

Unions have also expressed concerns about the merger. Vodafone announced last month that it was planning 11,000 redundancies globally over the next three years.

Gail Cartmail, the executive head of operations at Unite, said: "This deal will give a company with deep ties to the Chinese state an even more prominent place at the heart of the UK's telecommunications infrastructure.

"On top of that, it will hike people's bills and mean job losses for Vodafone and Three workers. The government must step in and stop this reckless merger and Unite is building a cross-party coalition to demand they do so."

By contrast, Margherita Della Valle, Vodafone's group chief executive, described the merger of Vodafone UK and Three UK as being "great for customers, great for the country and great for competition."