Three UK boss piles on pressure for Vodafone merger approval

The U.K. Communications and Markets Authority (CMA) has set March 22 as the deadline by which it should reach a decision on the first phase of its probe into the proposed merger of Three UK and Vodafone UK — in other words, by the end of this week.

As the CMA indicates, it is by no means certain that a decision will actually be announced by or on this date. However, it seems likely that the two merging partners will soon find out if they will face a more in-depth merger investigation that could last up to 32 weeks.

As they wait, both Vodafone UK and Three UK have availed themselves of the opportunity to hammer home, repeatedly, the message that they will struggle to survive as standalone operators in the face of competition from two large, converged rivals: BT/EE and Virgin Media O2.

Vodafone, for instance, has warned several times that its ambitions for a speedy rollout of a standalone 5G network will be hampered if the merger is not permitted to go ahead — even though it seems that Scotland would not get full 5G SA coverage until 2034 even with the merger.

Balancing act

The CEO of Three UK has fired the latest salvo in the matter — using the operator’s results for the 2023 financial year to underscore why the merger should absolutely be allowed to take place.

According to Robert Finnegan, Three UK reported negative earnings before interest and tax (EBIT) for the first time since 2010, and he attributed this squarely to the cost of “rolling out and maintaining our 5G network, and our commitment to improving connectivity across the U.K.,” which he said “has impacted our profitability.”

“This financial performance is clearly unsustainable despite scaling back our 5G investment. With the current market structure of four MNOs, where there are two scaled players who have the ability to invest but do not face enough competitive pressure to do so, and two players (Three UK and Vodafone UK) who lack the scale to be credible challengers, the U.K. will continue to lag behind on 5G,” Finnegan stated.

In 2023, Three UK posted an EBIT loss of £117 million, compared to a profit of £147 million in 2022. Reported EBITDA fell 34% to £402 million while revenue rose 3% to £2.59 billion. The operator was at least able to bring capex down substantially by 39% to £454 million. It now operates 4,700 5G sites across 650 towns and cities in the nation.

Tough decision ahead

A potential boost for Vodafone and Three came in a ruling in December by the European Commission, which found no evidence of competition concerns over the deal. However, the commission is of course less concerned with the U.K. these days now that the nation is no longer part of the European Union.

As for which way the CMA will likely turn, CCS Insight analyst Kester Mann has previously noted that it won’t be won over easily.

In a blog late last year, Mann nevertheless opined that the merger “will sneak through,” putting the chances of the merger gaining approval at about 60%.

“But to ensure the green light, the two parties will probably need to make further commitments. I believe they would be prepared to concede further ground given their precarious future as standalone operators if the deal gets blocked,” he said.

Mann also pointed out that convincing the CMA of the merits of the deal is just the start. “Combining two mobile networks is a herculean task; if approved, the joint venture will need to carefully manage the integration to ensure there’s no impact on customer service. It’ll also eventually have to make difficult decisions in areas like the choice of network suppliers, branding, jobs and retail,” he said.