Vodafone Group confirmed in a statement today that it’s in discussions with CK Hutchison Holdings about a possible combination of Vodafone UK and Three UK.
The talks are centered around combining their UK businesses, with Vodafone owning 51% and CK Hutchison owning 49% of the combined entity. The relative ownership would be achieved through a differential leverage contribution at closing, and no cash consideration will be paid, the statement said.
Reports of a tie-up between the two emerged earlier this year. Vodafone and Three are the third and fourth largest operators, respectively, in the country and a combination would end up creating the biggest, with more than 27 million subscribers.
The UK’s telecom regulatory authorities need to give their blessing to any deal that transpires, but Vodafone said conditions are ripe for consolidation. Otherwise, it argues, the UK is at risk of losing out on 5G leadership.
“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 UK and expand broadband connectivity to rural communities and small businesses,” Vodafone stated.
The merged business would challenge EE and O2 and bring benefits through competitively priced access to a third “reliable, high quality, and secure” 5G network throughout the UK, according to Vodafone.
The company said the deal isn’t final and there’s no guarantee that they will agree to a transaction; it will release further statements “when appropriate.”
Ernest Doku of Uswtch.com, which provides online telecom service price comparisons, said it remains to be seen whether a merged company would continue to offer the best deals for consumers, maintain competition and deliver on the promise of 5G.
“Two of the UK mobile market’s biggest players teaming up would be a huge shake-up to the industry, turning the big four into a big three,” Doku said in a statement. “With the scale and costs involved in the rollout of 5G, a merger makes a lot of sense. Consumers have told us that they expected more from this technology than they’ve experienced to date, so any move that will expand and improve coverage is to be welcomed.”
However, while the ink is far from dry, “any deal would make the new business the biggest mobile provider in Britain and would attract scrutiny from both Ofcom and the Competition and Markets Authority,” he added.