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The huge £16bn+ merger between mobile network operators Vodafone and Three UK (CK Hutchison) officially completed today, which will change the competitive dynamic of the UK market. The deal is also expected to help improve the national coverage of the latest 5G Standalone (mobile broadband) technologies, but concerns remain over jobs and consumer pricing.
Just to recap. The merger, which was first announced in June 2023 (here) and finally approved by the competition authority in December 2024 (here), will see Vodafone retain a 51% slice of the business and CKH hold 49%. Both operators have previously promoted the deal as being “great for customers, great for the country and great for competition,” while also resulting in a major £11bn investment to upgrade the UK’s 5G mobile infrastructure and coverage over the next ten years.
The move to create a single company (VodafoneThree) will, however, require the parties to follow several legally binding commitments. The goal of this, as expressed by the Competition and Markets Authority (CMA), is to ensure that the new company delivers on its planned improvements to network coverage and caps the prices of “selected” mobile tariffs and data plans for the next 3 years. The CMA also required some changes to ensure effective wholesale (MVNO) competition.
The move should help the Government to deliver on their “renewed push to fulfil the ambition of full gigabit and national 5G coverage by 2030,” which is something that Ofcom will now need to ensure is delivered. The operators have also launched a new website to highlight their plans – VodafoneThree, which is something we covered earlier and only a few minutes before the official announcement (here).
Margherita Della Valle, Vodafone Group CEO, said:
“The merger will create a new force in UK mobile, transform the country’s digital infrastructure and propel the UK to the forefront of European connectivity. We are now eager to kick-off our network build and rapidly bring customers greater coverage and superior network quality. The transaction completes the reshaping of Vodafone in Europe, and following this period of transition we are now well-positioned for growth ahead.”
Canning Fok, Deputy Chairman of CKH and Executive Chairman of CKHGT, said:
“As we have demonstrated in other European markets, scale enables the significant investment needed to deliver the world-beating mobile networks our customers expect, and the Vodafone and Three merger provides that scale. In addition, this transaction unlocks significant shareholder value, returning approximately £1.3 billion in net cash to the Group.”
However, despite all of today’s soundbites of optimism, many consumers remain unconvinced by the agreement and are still concerned about what will happen to cheaper mobile plans once the three-year period of price protection has elapsed. The fears of future price hikes and the gradual removal of cheap plans from the UK market, either directly or via MVNO providers (e.g. iD Mobile, Smarty etc.), seem unlikely to go away anytime soon.
In addition, many of the merged company’s workers will now be going through a period of some uncertainty, which reflects the fact that the new company will be looking for cost efficiencies and such things often get reflected through the removal of duplication (i.e. duplication of both roles and network infrastructure). Inevitably, such deals tend to result in job losses, which may hit in the near future.
At the same time, it’s worth remembering that today’s completion only refers to the legal agreement and its details. The hard part, which involves integrating teams, networks and offices (it’s also unclear what will happen to the ‘Three’ brand long-term) – as well as launching new products, often takes several years to fully realise. Just ask BT and EE or O2 and Virgin Media, although they also had the complexity of fixed line networks to consider.
According to today’s announcement, in its first year, VodafoneThree plans to invest £1.3 billion in capex. This will enable the company to accelerate its network deployment. Consistent with previously communicated expectations, the combined business is expected to deliver cost and capex synergies of £700m per annum by the fifth year after completion and the transaction is expected to be accretive to Vodafone’s Adjusted free cash flow from FY29 onwards. Full alignment to Vodafone’s accounting policies is ongoing and pro forma financials will be provided in due course.
Finally, O2 (Virgin Media) and EE (BT) will now naturally face competition from a much larger player in the UK mobile market. At the same time, Ofcom’s staff may quietly relish the greater simplification of only having three mobile operators to herd instead of four, even if that outcome may have some negatives.