Vodafone said a merger would create the ‘necessary scale’ to accelerate the roll-out of 5G in the UK.
Vodafone has confirmed it is in talks with the owner of Three UK for a potential merger.
The telecoms company said it is “in discussions” with CK Hutchison about combining the businesses in a non-cash deal that would create the biggest mobile operator in the UK.
Vodafone said the “envisaged transaction” would see it own 51pc of the combined business, while CK Hutchison would own 49pc.
The goal of the merger would be to better handle the costs of rolling out 5G across the UK, according to Vodafone.
“The UK government rightly sees 5G as transformational for the economy and society and critical to the UK becoming more competitive in an increasingly digital world,” Vodafone said.
“By combining our businesses, Vodafone UK and Three UK will gain the necessary scale to be able to accelerate the roll-out of full 5G in the UK and expand broadband connectivity to rural communities and small businesses.”
Vodafone said the combined business would challenge the market’s two consolidated players – BT’s EE and Virgin Media 02 – and create more competition for UK customers. The combined business would be the biggest mobile operator in the UK with more than 27m subscribers.
Vodafone said it made the statement in response to press speculation around a potential deal, but noted there is “no certainty that any transaction between the two companies will ultimately be agreed”.
A regulatory hurdle
Kester Mann, consumer and connectivity director at market research firm CCS Insight, said regulation would be a “major hurdle” if any deal begins to materialise.
“It would be up to the competition authorities to decide whether reducing the number of players is for the overall good of the market,” Mann said. “Advocates will argue it encourages investment; dissenters will claim it’s a reason to push up prices.”
UK telecoms regulator Ofcom has previously been outspoken against major mergers in this sector, blocking Three UK’s attempted £10.5bn takeover of 02 in 2016.
But in February, the regulator made a statement that appeared to soften its stance on mergers, giving rise to the possibility that other competitors could combine their businesses in future.
“Other deals involving Virgin Media O2, TalkTalk and Sky have been speculated in recent months,” Mann said.
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