Vodafone’s blockbuster £15 billion merger with Three edged a step closer to completion today after the telecoms giant signed a fresh network deal with its biggest British rival, Virgin Media O2. The pact, which is set to last for more than a decade, extends the two firms’ existing network sharing arrangement while also allowing VMO2 to acquire more network spectrum in the event that the merger goes ahead.
That would ensure that Vodafone’s combination with Three would not dominate the UK’s mobile network infrastructure, a move that it is hoped will placate competition regulators’ concerns over the size of the merged entity, ahead of a final decision on whether to approve the deal scheduled for later this year.
Ahmed Essam, Europe CEO at Vodafone, told the Standard: “I see this as a significant milestone for us as we work through the merger process. This agreement materially enhances VMO2’s network position and we think this improves the balance of spectrum allocation between all operators, incentivising all the players in the market to compete and invest.”
Lutz Schüler, CEO of Virgin Media O2 said: "We are extending and bolstering elements of our existing network sharing arrangement, while also ensuring there is a robust, balanced and functional structure in place for the long-term should Vodafone and Three's proposed merger gain consent.”
In June last year Vodafone and Three have unveiled a deal to merge their UK businesses, creating a £15 billion behemoth that would become the country’s biggest mobile network operator with around 27 million customers. Vodafone and Three’s parent company CK Hutchison Group Telecom Holdings plan to create a new entity, in which Vodafone will hold a 51% stake and CK Hutchison 49%.
The proposal cleared its first regulatory hurdle in May, after the UK government elected not to stand in its way following a detailed national security review. But the deal could still be scuppered by competition regulators after a previous merger between Three and O2 was blocked by the European Commission in 2016.
Vodafone has promised to invest £11bn into telecoms technology if the deal is given the green light, claiming the merger could be worth as much as £5 billion per year in “economic benefit” by 2030 as it will allow the UK’s 5G network to get up and running more quickly.
But in April, the Competition and Markets Authority announced it would begin an in-depth probe of the tie-up after expressing concerns it could have a “substantial” impact on competition, “may make it difficult” for smaller mobile operators and could lead to higher prices for consumers.
Vodafone has insisted that the market needs fewer, larger players in order to meet the high costs of capital needed for telecoms infrastructure investment. The company has already withdrawn operating in a number of European countries over the past year, selling its Spain unit for £4.4 billion in October and offloading its Italian unit to Swisscom for £6.8 billion in March.
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“What the competition authorities should see is that the commitment for our investment is real because it’s underpinned by a long-term network sharing agreement,” Essam said.
“The UK still lags Europe on 5G mobile coverage – we need to break out from the low-investment cycle we’re seeing in the market. We’re engaging with the CMA panel to address their questions and we will highlight the benefits of our recent activities and how this enhances the merger proposition.”
The CMA has a deadline of 12 October to publish a final report into its probe.
