Deal to combine firms’ British telecoms networks likely to face competition scrutiny

Vodafone and the owner of Three have agreed a deal to merge their British telecoms networks in a move that will create the UK’s largest mobile phone operator.

The two companies are the UK’s third- and fourth-biggest operators respectively. The newly combined company will, if the merger is completed, have more than 27 million subscribers, leapfrogging rivals EE, owned by BT, and Virgin Media O2, owned by Spain’s Telefónica and the US-listed company Liberty Global.

The deal is likely to face close scrutiny from competition regulators, although the UK’s Competition and Markets Authority (CMA) said last year it was more open to consolidation in the sector. It had previously argued that dropping to only three networks in a country could harm consumers.

In 2016 the CMA and the European Commission blocked Three’s attempted takeover of O2, arguing that it would have risked higher prices.

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”, in a stock market announcement published on Wednesday.

Talks between Vodafone and CK Hutchison, the Hong Kong-controlled owner of Three, have been running since autumn. Vodafone will have 51% and CK Hutchison will have 49% of the combined business. The companies said the merged business would invest £11bn in the UK over 10 years.

Completing the merger will be the first big task for Della Valle, who was appointed in April to replace Nick Read. Read had struggled to arrest a long decline in Vodafone’s share price from above £2.50 in 2015 to below 75p in June. Della Valle in May announced plans to cut 11,000 jobs as part of her turnaround plans.

Vodafone is a member of the FTSE 100, with a market value of about £20bn. However, it has come under pressure from activist investors, including the French telecoms billionaire Xavier Niel, whose investment vehicle in September said it wanted Vodafone to “pursue consolidation opportunities”. The Emirati telecoms group e& recently upped its stake to 14.6%.

The Swedish investor Cevian had also bought shares in the company to push for change but had reportedly sold most of it by the time the Three talks were disclosed.

For CK Hutchison, the deal could be a first step towards exiting the UK telecoms market. The conglomerate also owns interests in ports, retail and infrastructure, such as a UK train leasing company and Northumbrian Water.

The Guardian