Vodafone–Three Merger: Now It’s Approved, What’s Next?

Today’s news that the UK’s Competition and Markets Authority (CMA) has approved the merger between Vodafone and Three marks the end of a tumultuous period of regulatory scrutiny and intense industry debate.

Our earlier Instant Insight evaluates the agreed remedies. We conclude that the merging parties should be very satisfied with the outcome given prior regulatory resistance to in-market deals.

I’ve always argued that the merger should be allowed to go ahead and I’m pleased to see that it is. The market will be better served by having three strong players than two that are dominant (BT and Virgin Media O2) and two that are subscale (Vodafone and Three).

But for the merging parties, now the hard work really begins. Gaining regulatory approval is one thing, combining two established mobile networks with a complex assortment of suppliers is something else.

For example, Three still counts four radio access equipment suppliers — Nokia, Samsung, Huawei and Ericsson — and although Vodafone relies mostly on Ericsson, it’s been swapping out Huawei gear for Samsung at 2,500 largely rural sites as part of a push into Open RAN, which also involves Intel, Dell and Wind River.

Both operators have also been upgrading their core: Vodafone is migrating from a Cisco 4G core to a converged offer from Ericsson; Three has outlined plans to move away from its current Nokia core. Transitioning to a single core would be the most efficient long-term option, but migrating customers takes time and brings technical challenges.

Before long, the new company will also need to decide about brands. In the long term, it makes little sense to retain both the Vodafone and Three brands as they mostly compete in the mobile market and would therefore incur duplicate costs. As Vodafone holds a majority 51% share in the joint venture, we expect its brand to prevail at the expense of Three, which has struggled to shake off poor perceptions of network quality since launching over 20 years ago, despite notable improvements in 5G. A similar story should play out among the sub-brands, with Vodafone’s Voxi retained ahead of Three’s Smarty.

However, transitioning to one brand wouldn’t be straightforward. It’d require significant IT investment to move to a single online presence and result in major changes on the high street. Communicating the change would also need to be carefully managed as some customers may resist moving to a new brand.

CEO of the joint venture, Max Taylor, faces other challenges, such as managing the two different cultures between the organizations; balancing the ambitions of both parent companies, Vodafone Group and CK Hutchison; and maintaining staff morale amid understandable concern about job security.

I’m sure the new company will soon set out its strategic priorities. When it does, I’ll be interested to hear how it plans to achieve its pledge to offer fixed wireless access to 82% of UK households by 2030. This could bring some disruption to the home broadband market and spearhead a more assertive push into converged services, a market that has developed little in the past few years.

The Vodafone–Three merger is likely to spell the end of a drawn-out period of consolidation among major UK telecom providers, dating back to the merger of Orange and T-Mobile to form EE in 2010. BT bought EE in 2016 and Virgin Media and O2 merged in 2021. The next area set for major structural change is likely to be the bloated market of alternative fibre providers. There are dozens of these so-called altnets, but many lack the scale and financial backing needed for long-term survival.

A few people have asked me what the deal means to the other UK operators. For the time being, I suspect it will be business as usual. But merging companies can easily become distracted by internal integration. If the joint venture takes its eye off the market, rivals need to be ready to pounce on any disillusioned customers.

For Vodafone Group CEO Margherita Della Valle, the deal is another important achievement as she strives to transform the embattled operator into a more focused organization. It follows the company’s recent exit from Spain and the planned sale of its Italian arm to Swisscom, set to complete in early 2025. The next milestone for the UK would be for Vodafone to exercise its option to acquire CK Hutchison’s remaining 49% share in the joint venture within three years, which would give it 100% ownership.

The European sector will also hope the deal marks the beginning of a more sympathetic stance from regulators toward consolidation. Strong competition has allowed customers to benefit from low prices, but the region’s fragmented market structure and surplus of providers appears to have stifled investment and innovation as it continues to slip further behind leading technology markets such as the US and China. Even though the CMA only rules on UK matters, its decision could give operators in other markets renewed hope to strike fresh deals.

Vodafone and Three can congratulate themselves on navigating the tricky path to regulatory approval. The CMA has proved it’s not afraid to make bold or controversial decisions, and when the deal was first announced we said the outcome was “too difficult to call”. Their tireless work over the past 18 months has led to one of the most significant moments in the history of the UK mobile market.

But they shouldn’t pause to celebrate; right away, the joint venture will need to start achieving its many promises to bring about much-needed improvements to the country’s digital infrastructure. Regulators, competitors and customers will be watching closely to ensure it lives up to its word. After the battle to gain approval, that could prove an even sterner test.