Vodafone, Three announce plan for biggest UK mobile group

Mobile phone giant Vodafone has agreed to merge British operations with Three UK, owned by Hong Kong-based CK Hutchison, to create Britain's biggest operator with 27 million customers and accelerate rollout of faster 5G connectivity, the pair said Wednesday.

Expansion of 5G across the UK has been hampered by Britain's ban on Chinese giant Huawei, a major supplier of equipment for mobile telephone networks.

Vodafone and CK Hutchison said in a joint statement they were targeting a value of GBP16.5 billion ($21 billion) for the new group, above a current valuation of GBP15 billion.

"The (target) figure is... what we feel would represent success a few years after the merger" is completed, said a Vodafone spokesman.

The companies hope to complete a deal by the end of next year but face regulatory hurdles.

Vodafone chief executive Margherita Della Valle, who recently cut 11,000 jobs at the group, said the long-awaited merger "is great for customers, great for the country and great for competition.

"It's transformative as it will create a best-in-class -- indeed best in Europe -- 5G network, offering customers a superior experience," she added.

The tie-up, explored by Della Valle's predecessor Nick Read, will lead to network investment of GBP11 billion over ten years, the statement said.

Canning Fok, group co-managing director of CK Hutchison, said the merger "will have the scale needed to deliver a best-in-class 5G network for the UK, transforming mobile services" for customers.

"This will unlock significant value for CK Hutchison and its shareholders, realise material synergies, reduce net financial indebtedness and further strengthen its financial profile," he added.

The transaction will see Vodafone take 51 percent of the combined group and CK Hutchison the rest.

"The deal is obviously subject to approvals from shareholders and regulators and Vodafone's statement gives a clear indication that it is the latter they are more concerned about," noted Dan Ridsdale, analyst at Edison Group.

The merger, if approved, will vault the new group above the country's two largest mobile operators BT EE and Virgin Media O2 in terms of customer numbers.

"The release reads like an overt pitch to convince a broader set of interest groups... leading with the benefits for customers, country and competition, before looking at deal synergies," added Ridsdale.

The statement said the merger "will deliver up to GBP5 billion per year in economic benefit by 2030, create jobs and support digital transformation of the UK's businesses.

"Every school and hospital in the UK will have access to standalone 5G by 2030," it added.

In 2020, London banned Chinese telecoms giant Huawei from involvement in the roll-out of Britain's superfast 5G broadband network, after US concerns about spying.

"Countries like China and Russia are willing to manipulate and exploit or steal our intellectual property, use technology for authoritarian ends, or withdraw crucial resources like energy," British Prime Minister Rishi Sunak last week told a news conference following a White House summit with US President Joe Biden.

Vodafone boss Della Valle meanwhile last month announced plans to axe 11,000 jobs over three years, mirroring culls across the tech sector as soaring inflation weighed on the global economy.

The cuts at Vodafone were equal to more than 10 percent of its global workforce.

Her predecessor Read stepped down in early December after a four-year tenure marked by a steep fall in the company's share price.

"Vodafone shares have edged higher from yesterday's 25-year lows after it was confirmed that it would merge its UK business with Three's UK business to create the UK's number one mobile telecoms provider," said Michael Hewson, chief market analyst at CMC Markets UK.