CMA approves £16.5bn Vodafone and Three deal and sets terms for UK telecom’s future

The UK Competitions and Markets Authority has approved the merger of Vodafone and Three, paving the way for a £16.5 billion ($21bn) alliance that will reshape the British telecoms sector.

The amalgamation will create a new market leader in the UK’s mobile sector after the regulator gave its approval to the deal.

The deal is contingent on a number of legal obligations, including a commitment to spend £11bn ($14bn) improving 5G connectivity services across the country.

Legally binding commitments include capping some mobile tariffs and the agreement to offer preset contractual terms to mobile virtual network operators who leverage the combined firm’s wholesale network.

Price rises will be capped for several years, with both the CMA and regulator Ofcom set to enforce any conditions, which will be reported annually.

Some had questioned the deal’s ability to reduce competition in the connectivity market, as the merger will reduce the number of UK mobile network operators from four to three: Vodafone/ Three, BT/EE, and VMO2.

The deal, which brings together the UK’s fourth and third biggest operators, was first struck in June 2023. The combined entity will have around 27 million subscribers.

Vodafone’s chief executive, Margherita Della Valle, said the approval “releases the handbrake on the UK’s telecoms industry.”

Della Valle said: “Today’s decision creates a new force in the UK’s telecoms market and unlocks the investment needed to build the network infrastructure the country deserves.

“Consumers and businesses will enjoy wider coverage, faster speeds and better-quality connections across the UK as we build the biggest and best network in our home market.”

Vodafone will own a 51% stake in the merged company, while Three-owner CK Hutchison — based in Hong Kong — will own the remaining 49%.

Read more: How do organisations like Vodafone unlock innovation through smarter data strategies?

Canning Fok, the deputy chair of CK Hutchison, said: “When Three and Vodafone are combined, CK Hutchison will fully support the merged business in implementing its network investment plan, the cornerstone of today’s approval by the CMA, transforming the UK’s digital infrastructure and ensuring customers across the country benefit from world-beating network quality.”

The merger follows a tie-up between O2 and Virgin Media to form VMO2 in 2021. The company is a joint venture between Virgin Media owner Liberty Global and O2 owner Telefonica.

The other primary UK player is BT-owned EE, formed in 2010 as a merger between the then fourth-placed T-Mobile and third-placed Orange before it was bought out by BT in 2016.

The industry’s reaction to the Vodafone and Three deal has been mixed, with rivals such as BT strongly opposing the consolidation.

However, Rafael González, CMO at MedUX, said the newly merged entity needs to focus strongly on improving 5G services.

He said: “While the Vodafone/Three merger includes commitments to invest in 5G, general investment alone may not be sufficient to improve the experience for UK citizens and enterprises. Capital expenditure should specifically focus on enhancing 5G coverage, availability, reliability, and performance.

“With various versions of 5G offering different quality levels, it’s essential to address overlooked factors such as the spectrum bands used, minimum required speeds, and the performance capabilities necessary for new use cases.”

He concluded: “Considering these factors is crucial for contributing to positive social welfare and improving network quality.”