The two announced their intention to merge in June 2023 – could Three’s Hong Kong-base parent scupper the deal?
Today, CK Hutchison, and Vodafone Group formally notified the UK’s Competition and Markets Authority (CMA) the proposed merger of Three UK and Vodafone UK. They are seeking its approval.
The two announced their intention to merge and create the UK’s biggest mobile operator in June 2023. The plan is for Vodafone to hold 51% of the merged entity and Three’s parent company, CKHGT the remaining 49%.
At the time of the announcement, Margherita Della Valle, Vodafone Group Chief Executive, commented, “The merger is great for customers, great for the country and great for competition. It’s transformative as it will create a best-in-class – indeed best in Europe – 5G network, offering customers a superior experience.
“As a country, the UK will benefit from the creation of a sustainable, strongly competitive third scaled operator – with a clear £11 billion network investment plan – driving growth, employment and innovation.
“For Vodafone, this transaction is a game changer in our home market. This is a vote of confidence in the UK and its ambitions to be a centre for future technology.”
When is a commitment no longer valid?
The timing of this latest announcement involving the CMA is interesting. Parliament is debating the progress of the Shared Rural Network (SRN), a government initiative established in 2020. Both Vodafone and Three have failed to meet their commitments for the SRN and last October requested more time to meet its phase one objectives.
Arguably the SRN situation could pose the question of if the two will stick to the commitments they are making now post-merger. For example, in the face of unforeseen adverse conditions such as those experienced since 2020.
There have also been concerns in some quarters about Three’s Hong Kong-based parent company as a potential security risk. It is perhaps unfortunate that after so long since the intention to merge was announced, Vodafone and Three made this announcement in the same week as the government has expressed concern about e&’s stake in the Vodafone Group. It is acting on the grounds of national security.
Why the merger is a good idea
A white paper in support of the merger has been published recently by Compass Lexecon in support of the merger, entitled Do Four-to-Three Mobile Mergers Harm Consumers? A Deep-Dive into the UK Market. It was commissioned by Vodafone and Three. The paper’s main findings are:
• The UK is recognised as having the slowest data download speeds in the G7 (Opensignal research, December 2023), and it ranks 39th out of 56 countries in terms of active 5G connections (June 2023). Without a step-change in investment, the UK risks slipping even further behind.
• The current UK market structure of two scaled mobile network operators which make a return on invested capital and two smaller mobile network operators that do not is failing to deliver this investment.
• The merger in the UK of Vodafone and Three is predicated on resolving this network investment challenge. It will create a new, properly funded third infrastructure provider and help level the playing field with the larger players, while offering better network quality to consumers, business customers and MVNOs. As such, it will also increase competitive pressure on BT/EE [Editor’s note: BT/EE is claiming to be the only UK operator to have delivered on its commitments to the SRN and six months ahead of schedule to boot] and VMO2 to invest in their mobile networks, driving significant improvements for customers.
• From day one, at least 7 million customers will see improved network speeds and benefit from reduced congestion and less buffering. By 2032, more than 86% of the population will benefit from ultrafast average mobile speeds that are around double what either Vodafone or Three could achieve on a standalone basis.
Pledges from the top
Ahmed Essam, CEO of Vodafone UK, said in a statement, “We have formally submitted our Merger Notice to the CMA, having worked with them closely through the pre-notification process. We look forward to continuing the constructive conversations now that the formal process has begun. We strongly believe that the proposed merger of Vodafone and Three will significantly enhance competition by creating a combined business with more resources to invest in infrastructure to better compete with the two larger converged players.
“Our commitment to invest £11 billion will build capacity to meet the exponential growth in demand for data and accelerate the roll out of Advanced 5G across the UK, delivering benefits to consumers and businesses throughout the nation.”
His counterpart CEO at Three UK, Robert Finnegan, added, “By combining networks, Three UK and Vodafone UK will unlock £11 billion of investment that will help the UK close the 5G gap with leading European countries and realise its ambitions to be a front-runner in digital connectivity. Thanks to this transaction, 95% of the population and every school and hospital will be covered by standalone 5G by the end of the decade. Joining forces will also yield more immediate benefits.
“From Day One, our customers will enjoy faster, more reliable coverage over more of the country – and without paying a penny extra. We are confident that this transaction will deliver significant benefits to our customers, the country and competition, and we look forward to working closely with the CMA as they review our notification.”