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21st Jun 2022


Crossed Wires – What you Need to Know About the Vodafone and Three Merger

Three become (Vodaf)One

Unless you’ve been living under a rock, or have exceptionally bad signal wherever you are, you’ve probably heard about the planned merger of two telecom giants, Vodafone and Three. 

But what does this mean for the current UK market, and will these two giants in turn become one unstoppable goliath? 

If this merger were to go ahead, it would mean the UK’s third and fourth largest mobile networks would combine to create a business with 27 million customers. A customer base larger than current leaders BT, as well as EE, and Virgin Media O2.

The hope is that this collaboration would accelerate the rollout of 5G and rural broadband. Reports suggest the two companies hope to strike a deal by the end of the year, but what are the odds of this deal actually being approved? 

Deal or No Deal – Will it be Approved?

Despite the best intentions, we all know that these companies won’t have the final say in regard to whether this merger actually takes place. This decision, of course, is reliant on the enthusiasm of UK Regulators – and as of right now, there are some hurdles to overcome. 

Based on past events, it seems like Ofcom might oppose this merger. One of the reasons being that it would reduce the number of networks available to consumers in the UK. 

The concern is this will open up the opportunity for one network to eventually monopolise the market, and ultimately put consumers at risk of price hikes. And with the cost of living crisis raging on, it is understandable that this concern would be spotlighted. 

However, Vodafone has pointed to a recent report [from Ofcom], which might suggest a new approach. It found that both Vodafone and Three had in recent years delivered returns on investments that were lower than the cost of the capital they used. The argument is that this merger would simply improve returns and unlock shareholder value for these companies.

If this merger were to be approved, I think there would need to be legally-binding concessions in place in order to reassure regulators of the networks’ intentions. 

Scale Whilst Cutting Costs

According to Ben Wood, an analyst at CCS Insight, the leading motivation for these companies to join forces is the sweet siren call of scale. 

“In Telecommunications, the most successful companies tend to be the largest; bulking up would offer many synergies and cost-saving opportunities. Under the status quo, it’s hard to see either operator growing enough, organically, to get close to challenging BT and Virgin Media O2 for size in the UK.” 

Is this merger a shortcut for these networks? A cheat code for scale? 

Well, if the UK wants to be a 5G leader, thriving competition in the UK market needs to be nurtured. Perhaps huge, fast-tracked growth will be the answer.

How do you think this deal will end? 

And as consolidation may not be a viable option for some networks, is there an easier way to scale in Telecom? 

I’d love to know what you think.