In order to build a market-leading mobile network that could speed up the rollout of 5G services and increase internet access, Vodafone and Hutchison are in discussions about combining their businesses in Britain. In the proposed acquisition, Vodafone said on Monday it would control 51% and Hutchison 49%, with the stakes realized by changing who owns their debt rather than exchanging any cash.
In-depth information on the three merger agreement between Vodafone and Hutchison
A Reuters report said the merger of Britain’s third and fourth largest networks, Vodafone UK and Hutchison Wealthy would emerge into a company with around 27 million mobile subscribers, outstripping flagships BT’s EE and Virgin Media O2. According to a statement by Vodafone, “By bringing together our businesses, Vodafone UK and Three UK will gain the scale needed to be able to accelerate the rollout of the full 5G network in the UK and expand broadband connectivity to rural communities and small businesses.”
In an earlier Sky story, the two companies hope to reach an agreement before the end of the calendar year. Vodafone’s share price, which on the day hit a two-year low, rose 2.5% to 104p. In order to boost returns in markets where competitors only pay the capital costs needed to invest in networks, Vodafone CEO Nick Read said in February that the company was considering acquisitions in a number of European countries.
Since the COVID-19 pandemic, there have been indications that regulators’ resistance to transactions that would reduce the number of carriers in mega-markets to four to three has shifted. Regulators prevented Hutchison from acquiring Telefonica’s O2 network in Britain seven years ago. Eventually, Telefonica joined forces with Virgin Media of Liberty Global to launch a fixed-line and mobile company to compete with BT, the former monopoly. In a statement, Vodafone noted that Ofcom has classified Vodafone UK and three UK as sub-operators, meaning they lack the scale to cover the cost of capital and risk losing ground to the two market giants.
According to a reading, the pandemic was an example of the importance of fast, reliable networks and generated a “tailwind of engagement” with governments. Analysts believe regulators will be reluctant to agree to a purchase that reduces competition at a time when consumers are already paying higher prices due to the cost of living problem. For example, for mobile virtual network providers, Vodafone said Monday that the merger could benefit from “competitively priced access” to a larger 5G network. These competitors, which also include Sky and Tesco Mobile, have amassed a significant portion of the British smartphone space.