Vodafone has confirmed that it is in discussions with CK Hutchison Holdings Limited (“CK Hutchison”) in relation to a possible combination of Vodafone UK and Three UK. The envisaged transaction would involve both companies combining their UK businesses, with Vodafone owning 51% and CK Hutchison owning 49% of the combined business.
James Robinson, Senior Analyst at Assembly comments:
"Vodafone has been a vocal proponent of consolidation, while Three has called the UK mobile market dysfunctional and overcrowded. The CMA, which would likely have responsibility for reviewing such a transaction, took issue with a similar proposal for consolidation before and there is little indication that its position has shifted since.
"Aside from creating a new mobile market leader, a combined Three/Vodafone would boast a significant proportion of 5G spectrum in the 3.4-3.8GHz range. While spectrum was not one of the EC’s primary reasons for blocking O2/Three, mid-band (i.e. 1-6GHz) is a priority 5G range and may lead the CMA to consider the balance in assignments between operators and potential divestment options.
"The CMA and EC have previously determined that having an operator involved in both UK network sharing arrangements could weaken competition and facilitate information exchange. Similar concerns would likely emerge in a Three/Vodafone merger but may be easier to overcome given that the agreements are less integral to operators’ 5G rollouts and MBNL is set to expire in 2031.
"A deal between Three and Vodafone would reduce the number of mobile operators serving MVNOs, potentially leaving them in a weaker bargaining position. As such, the CMA might consider remedies to maintain retail competition, including requiring the merged firm to reserve a portion of network capacity for virtual players.
"While the parties might view consolidation as a way to improve returns and unlock shareholder value, we expect the CMA would be eager to protect against the risk of consumer price rises - particularly in light of the current cost of living crisis. We would therefore expect this issue to be the most contentious point within a Three/Vodafone merger, and would potentially require legally-binding concessions."
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