Vodafone UK Allegedly Expressed Interest in Three UK Merger

Mobile operator Vodafone UK is allegedly reported to have explored a move to merge with rival Three UK by acquiring them from parent CK Hutchison Holdings. But the expression of interest, which is said to have been made last year, did not lead to an agreement and is no longer part of active negotiations.

At first glance, the idea of a merger between the two operators might seem a bit awkward, not least because both tend to sit at opposite ends of the mobile-only market (i.e. Three UK is more of a low-cost consumer operator, while Vodafone prefers to lean more into the premium and business side). But it’s by no means the first time that Vodafone has mooted the idea.

Last November the CEO of Vodafone, Nick Read, let the market know that he foresaw further mergers and acquisitions in the UK telecoms market, which included a seemingly positive reception (here) to the question of whether or not the regulators (e.g. Ofcom and the CMA) would approve a hypothetical merger with Three UK. Not to mention that Vodafone has already joined with CKH in other markets, such as Australia.

On the flip side, Three UK’s CEO, Robert Finnegan, has similarly expressed hope that regulators will now be more open-minded to mergers. All of this concern stems from the 2016 decision by EU and UK regulators to block the previously proposed merger between Three UK and O2 (here), which ended up being overturned in 2020 by the European Court of Justice (here) – albeit too late for the deal. Since then, O2 has decided to tie the knot with Virgin Media instead. But Brexit has reintroduced some uncertainty over the regulatory climate and Ofcom’s likely position.

According to Bloomberg‘s sources, Vodafone expressed interest late last year in acquiring its smaller rival, but “the approach didn’t lead to an agreement, and it isn’t currently in active negotiations with CK Hutchison.” After the previous mergers between BT and EE, as well as O2 and Virgin Media, it becomes a bit easier to understand why Vodafone and Three UK might find some security together. Other markets around the world have also recently seen a reduction in primary mobile operators from four to three (e.g. Ireland).

As it stands, Vodafone and Three UK appear to not be pursuing the merger idea, which in theory should put an end to the story, at least for now. But the wheels of a competitive market never stop turning and so long as the idea is alive then there may be a time when somebody tries again. The news has also given a mild boost to share prices this morning, which confirms that the financial markets view the idea with some positivity.

Nevertheless, the benefits of such a merger aren’t quite as clear-cut as they were in the case of BT and EE or O2 and Virgin Media, which predominantly reflected a tie-up between fixed line and mobile centric businesses. By comparison, Three UK doesn’t have a fixed line business and Vodafone’s fixed line base largely reflects their partnerships with other networks, such as Openreach and CityFibre.

In short, we can’t see as many benefits for consumers stemming from such a merger (the internal business is another matter), but that would depend upon the detail of such a deal and how much spectrum they were allowed to retain (regulators may require that some spectrum be redistributed to rivals). No doubt the markets’ many virtual operators (MVNO) would also have some big concerns.