Vodafonethree’s A Crowd – Now Comes The Hard Bit

Network engineers can take solace from the completed merger of Three and Vodafone announced today, as the difficult technical work now starts to unify their separate networks over the next several years.

The union of the two mobile operators, imaginatively named VodafoneThree, was given the go-ahead by UK regulator the Competition and Markets Authority (CMA) at the end of last year, despite fears of possible price rises, and completed on May 31.

It aims to meld Britain’s third and fourth largest cellular firms into an operation capable of competing against the other two local giants – BT/EE and Virgin Media O2 (VMO2).

The new third force in telecoms promises to invest £11 billion over the next decade – a condition of the merger going ahead – in order to create what it claims will be one of Europe’s most advanced 5G networks. The result will give “millions of customers and businesses up and down the country a vastly superior mobile experience,” according to VodafoneThree.

It also promised consumer price protection, and to offer preset contractual terms for mobile virtual network operator (MVNO) customers for three years, as conditions of the deal being approved.

The biz stated that high-quality network connectivity is “critical to many elements of daily life,” and central to the UK’s economic growth prospects, and that its “significant investment” in a 5G Standalone network will propel the UK’s mobile infrastructure to the forefront of European connectivity.

It may have a long way to go with this aspiration, as a recent report ranked London at the bottom of the list compared with other major European cities when it comes to the overall quality of 5G user experience.

Legal completion is the “final hurdle of a long and challenging journey to officially join forces,” commented Kester Mann, Director of Consumer and Connectivity at CCS Insight, creating a new operator with a combined 29 million customers.

However, the merging parties have little time to celebrate, as the hard work now begins in implementing the many connectivity improvements they’ve long promised, he added.

“For many UK mobile users that have struggled for too long with poor signal, the upgrades can’t come soon enough.”

Mann said that network integration will likely be the biggest undertaking, referring to it as “a huge task.”

“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,” he explained.

Both operators have also been upgrading their network core, with Vodafone migrating from Cisco to a converged service from Ericsson, while 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,” Mann said.

These challenges are likely to be costly – VodafoneThree plans to invest £1.3 billion in capex in its first year alone – and if the conjoined biz is not allowed to raise prices, the money will have to be found elsewhere.

The Unite trade union, which opposed the merger, previously said it expected there could be up to 1,600 jobs lost, “in addition to the brutal 11,000 global job cuts Vodafone have recently announced.”

“On jobs, it’s clear there will be some losses,” Mann told us. “Today’s announcement talked about cost and capex synergies of £700 million per annum by the fifth year after completion.”

Megabuyte Chief Analyst Philip Carse claimed that the merger reshapes the UK telecoms market.

“Broadly speaking adding the third and fourth mobile businesses to create one (at c. £6.2 billion/$8.4 billion) slightly bigger than BTEE and VMO2’s mobile businesses, but still well adrift of those two when also considering fixed line activities (and smaller also than Sky UK),” he said.

History suggests that it will take some time for the merger to start to affect market dynamics, and it will probably take three years of network integration to see significant improvements in coverage, reliability, and capacity, Carse added.

So, three years before any significant improvements are seen, just as the promise not to raise prices ends.

Also after three years, Vodafone, which owns a 51 percent controlling stake in the new venture, will have the option to buy the remainder from Three’s parent, CK Hutchison, which means we expect the company will likely be renamed simply “Vodafone” at that point – full alignment to Vodafone’s accounting policies is already ongoing.

In the small print of the announcement, VodafoneThree says its net debt immediately after completion is expected to be £6 billion ($8.1 billion), made up of £4.3 billion ($5.8 billion) from Vodafone UK and £1.7 billion ($2.3 billion) from Three UK. This will result in Vodafone Group’s net debt increasing by £1.7 billion, it said.

However, some stand to benefit straight away, as the transaction “unlocks significant shareholder value, returning approximately £1.3 billion ($1.76 billion) in net cash to the Group,” said CK Hutchison Deputy Chairman Canning Fok.

Both parent groups have agreed to contribute £800 million ($1.08 billion) of equity to VodafoneThree to support the working capital requirements of the business, £408 million ($553 million) from Vodafone and £392 million ($531 million) from CK Hutchison. £600 million ($812 million) of this funding will be contributed shortly after closing, with the remaining £200 million ($271 million) to follow in Q1 2026. ®

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