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17 May 2022

Hutchison Three may seek UK merger again, this time with Vodafone

Rumors of a merger between two UK operators, Vodafone UK and Three UK, have resurfaced. 

 

This is natural in a market where two huge fixed/mobile players have been created through mergers – first incumbent telco BT acquired mobile operator EE, then Liberty Global-owned cableco Virgin Media merged with Telefónica’s UK arm, O2 UK, last year. Vodafone is heavily mobile-oriented in its home market while Hutchison-owned Three has no fixed lines. At least, together, they would have scale to compete effectively in the 4G/5G space, even if they had limited capability to mount a multiplay challenge to the two big operators. 

 

However, last time there was a serious attempt to consolidate two mobile operators – in that case, Three UK and O2 UK – the process was barred by competition regulators in 2016. They had been happy to sanction the far larger deal between BT and EE, because it did not lead to a reduced number of MNOs, and therefore less consumer choice.  

 

Since then, some four-to-three mergers have been permitted in various European countries, and the EU actually overturned the ruling that blocked the O2/Three deal in 2020, but it remains to be seen whether the UK would countenance a change in market landscape, especially since the deal would create a new market leader by mobile subscribers and by spectrum holdings. 

 

Talks between Vodafone and Three were confirmed by reports in the Financial Times newspaper last week, and Kester Mann, an analyst at CCS, responded: “Three has talked up consolidation for years; Vodafone is under shareholder pressure to strike deals.” 

 

Robert Finnegan, CEO of Three UK, recently called for structural change in the UK, saying the market was dysfunctional; while Vodafone’s group CEO, Nick Read, said in February that his company was actively pursuing mergers with rivals in certain European markets. Vodafone has already merged its Australian operations with those of Hutchison, forming VHA (Vodafone Hutchison Australia). 

 

Vodafone has been under pressure from activist investor Cevian Capital to seek mergers – the investor wants consolidation to reduce costs and improve future revenues.