Vodafone and Three-owner CK Hutchison Holdings (CKHH) have confirmed that they are in discussions about a possible merger of Three UK and Vodafone UK.
A merger between the two operators would be worth an estimated £14.5 billion according to analysts
The envisaged transaction would involve both companies combining their UK businesses, with CKHH owning 49% and Vodafone 51% of the combined business.
The relative ownership would be achieved through a differential leverage contribution at closing, and no cash consideration would be paid.
“The UK Government rightly sees 5G as transformational for the economy and society and critical to the UK becoming more competitive in an increasingly digital world,” the pair said.
“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. As Ofcom has identified, some operators in the UK – Three UK and Vodafone UK – lack the necessary scale to earn their cost of capital.”
They said that the combination would achieve “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”.
The pair contended that a merger would challenge “the two already consolidated players” – BT/EE and Virgin Media/O2 – for UK customers and bring benefits through competitively priced access.
A combination of the current number three and four UK mobile operators would create a new player bigger than EE and O2 combined, though lacking the fixed-line bases of its rivals.
Vodafone said that a deal to create a new telecoms group would be key, given the huge costs of rolling out and maintaining new 5G network infrastructure in the country.
“By combining our businesses, Vodafone UK and Three UK will gain the necessary scale to be able to accelerate the rollout of full 5G in the U.K. and expand broadband connectivity to rural communities and small businesses,”
“The merged business would challenge the two already consolidated players for all U.K. customers and bring benefits through competitively priced access to a third reliable, high quality, and secure 5G network throughout the U.K.,”
The merger is likely to be subject to close scrutiny by the Competition and Markets Authority. UK telecom regulator Ofcom has in the past been hostile to a reduction in the number of major mobile players from four to three, though there have been signs that this view is changing, with Ofcom now saying that any merger would be judged on the specific circumstances.
Three UK was close to a merger with Telefónica’s O2 back in 2016 before the European Commission blocked the deal.