Vodafone and Three are planning a tie-up that would create Britain’s biggest mobile supplier with more than 27m customers.
The telecom firms are in discussions about combining their UK businesses in a deal that could be agreed by the end of the year.
Vodafone confirmed the plans after a Sky News report suggested talks have intensified in recent weeks.
Mobile merger: Vodafone and Three are in discussions about combining their UK businesses in a deal would create Britain’s biggest mobile supplier with more than 27m customers
The FTSE 100 giant said it would have a controlling 51 per cent stake in the combined business, while Three’s owner, Hong Kong conglomerate CK Hutchison, would own the rest.
Vodafone is under pressure from investors including French tycoon Xavier Niel and activist Cevian Capital, which earlier this year took a stake and is pushing for the business to strike more deals in its markets and simplify its structure.
The mobile operator’s chief executive Nick Read has also stated a desire to pursue mergers in markets he deemed to be suffering from excessive competition, including the UK.
Read is under pressure to revive Vodafone’s lagging share price performance. It has fallen by around a fifth since he took over in 2018. Shares rose 2.6 per cent, or 2.6p, to 103.72p yesterday.
The deal would see Vodafone and Three, the third and fourth biggest operators, leapfrog EE and Virgin Media O2, formed through a merger last year. EE has 20m customers in the UK while Virgin Media O2 has 24m.
If agreed, the tie-up will almost certainly face scrutiny from the competition watchdog and Ofcom, the industry regulator.
But Vodafone said without the merger neither company would have the ‘necessary scale’ to invest in the rollout of 5G – a priority for the Government.
A spokesman said: ‘The conditions to ensure thriving competition in the market need to be nurtured, otherwise the UK is at risk of losing the opportunity to be a 5G leader.’
The company cited an Ofcom report describing the two operators as ‘sub-scale’ and unable to reap the rewards of investing in the costly technology.
Rivals: The deal would see Vodafone and Three, the third and fourth biggest operators, leapfrog EE and Virgin Media O2, formed through a merger last year
Vodafone said the combined business would support the UK’s 5G rollout, expanding internet access to rural communities and small businesses.
It added that the business would challenge Virgin Media O2 and EE, offering a ‘third, reliable, high-quality’ network.
A source close to the deal said the firms are optimistic about a potential Ofcom probe, but getting approval from the Competition and Markets Authority (CMA) would be ‘a nightmare’.
An investigation by the watchdog would likely focus on whether the merger would let Vodafone and Three push up prices for customers.
But the firms believe a tie-up would let them spread the huge cost of running their mobile network – leading to lower costs for users.
The CMA previously raised concerns about a mooted tie-up between Three and O2, which was eventually blocked by the European Commission.
Paolo Pescatore, a telecoms analyst at PP Foresight, said the biggest barrier will be getting CMA and Ofcom approval.
But he warned that even if the deal is successful there is ‘no silver bullet’ that will turn around the fortunes of both firms.
