Competition is Calling: Press Three (UK) to Hear About Their Merger With Vodafone UK

Executive Summary

In May 2025, Vodafone UK and CK Hutchison (Three UK) officially completed their merger, forming VodafoneThree, now the UK’s largest mobile phone operator. The deal reduced the number of the UK’s Mobile Network Operators (MNOs), from four to three. The market is now dominated by EE (BT), O2 (Virgin Media) and VodafoneThree. Inevitably, this merger raised significant anti-trust and competition concerns. The CMA had to issue ‘phase 2’ investigations into the competitive consequences of the merger, eventually allowing the merger to proceed after both companies agreed to a specific package of remedies.

This merger was a joint venture between two companies to form a new entity, with the motivation of increasing network connectivity for customers, narrowing the digital divide across the country and propelling the UK’s mobile infrastructure to the forefront of European connectivity. The merged entity plans to invest £11bn over the next ten years to create Europe’s most advanced 5G networks and support an expected 8000-12,000 new jobs in the wider economy.

This deal raised significant issues for UK competition law, especially given that the CMA previously rejected CK Hutchison’s proposed £10.3bn acquisition of O2 back in 2015. In a market which was previously dominated by only four key players, the merging of two of them was described by the CMA as a “substantial lessening of competition” in the retail and wholesale telecom market. However, after a rigorous investigation and reassurance that the deal would be beneficial for competition in the long term, the CMA approved the deal in December 2024.

Advisors

Vodafone UK was advised by Slaughter and May, acting as the lead legal advisor. The ‘Magic Circle’ firm handled competition law, regulatory aspects and national security. Morgan Stanley was the lead financial advisor to Vodafone, with Frontier Economics advising on some specific regulatory issues of the deal.

Three UK was advised by ‘Magic Circle’ counterparts, Linklaters LLP and Freshfields LLP. The latter helped CK Hutchison from pre-signing negotiations to the phase 2 merger control review by the CMA, while the former acted as lead for the structuring of the deal. Moelis & Co and HSBC acted as financial advisors.

Transaction Structure and Financing

This Merger was not a traditional acquisition of asset sale as each parent company agreed to contribute their respective UK operating businesses into a new joint venture, forming ‘MergeCo’/VodafoneThree. The merger was one of equals, resulting in a 51:49 ownership stake split, with Vodafone holding 51%. There were no cash considerations paid as each company contributed differential debt amounts, Vodafone contributing £4.3bn and Three contributing £1.7bn. Thus, this placed the initial debt for VodafoneThree at £6bn with Three’s £1.7bn being refinanced. In announcements made at the time of the deal, Vodafone anticipated that the merger would not impact their net debt to adjusted EBITDAaL ratio as the joint venture’s aforementioned debt was consolidated into Vodafone’s accounts and the companies did not exchange cash. Vodafone group’s Q1 FY26 update integrated the UK merger into their overall earnings forecasts, demonstrating no drastic changes to their leverage which affirms expectations prior to the merger.

After three years, Vodafone can acquire 100% of MergeCo, either through acquiring Three’s 49% stake (‘Call Option’) or through Three selling its stake to them (‘Put Option’) at fair market value. Regarding Governance, Vodafone was given the right to appoint MergeCo’s CEO, appointing existing Vodafone CEO Ahmed Essam and CK Hutchison appointed CFO, choosing previous Three UK CFO Darren Purkis. MergeCo’s board consists of six directors, with each parent company contributing three.

Anti-Competition Concerns Resolved

Although triggering scrutiny from the CMA on the basis of reducing UK telecom competition which necessitated a ‘phase two’ investigation, the merger was cleared after Vodafone and Three signed binding commitments (final undertakings) to help protect consumer and wholesale customers. Initial concerns raised by the CMA’s provisional findings in September 2024 included reduced competition and potential price increases or reduced services (e.g. smaller data packages) for the UK consumer, which would particularly impact those who already struggle to afford mobile services. Further, there were also concerns that MergeCo would not follow through with their proposed investment programme to improve 5G networks. Following this, in December 2024, the CMA published their final report, allowing the merger if Vodafone and Three agree to deliver their joint network plan. This included capping selected mobile tariffs and data plans for three years to protect customers from short-term price increases, and to offer pre-set prices and contract terms for wholesale services to protect competition among virtual network providers.

These commitments will be monitored by Ofcom, the UK’s telecoms regulator which was previously against any merger of the country’s four largest mobile network operators in order to protect prices for customers. However, their stance became more open minded following a promise to “be informed by the specific circumstances of that particular merger, rather than just the number of competitors”. This, combined with the legal commitments undertaken resolved concerns about unfair pricing for the consumer. Regarding competition concerns, Vodafone’s investor presentation promised that the merger will level the competitive playing field, “increasing competition to the two largest converged operators”; the smaller scale of the two entities prior to merging, meant that they were unable to recover the cost of capital and had limited investment and growth opportunities. This is not a concern now, the scale of MergeCo has the potential to drive innovation and encourage an enhanced competitive telecoms industry. Such sentiments were echoed by Andy Aitken, co-founder and CEO of ‘Honest’, commented that “Vodafone and Three simply don’t have the resources to compete with Virgin Media O2 and EE. Merging could actually create a more competitive market, giving us three strong players instead of two leaders and two laggards”.

Vodafone outlined the rationale behind increased retail and wholesale competition. The former is due to the possibility of MergeCo making converged offers in competition with EE and O2. Due to an existing network sharing agreement with Virgin Media O2, O2 customers will enjoy network improvements from this merger. As a result, this will increase competition with BT EE, which had led the market prior to the merger. Regarding wholesale competition, the UK’s MVNOs (wireless service providers that lease network capacity from MNOs, reselling it under their own brand at lower prices with niche plans) will gain better choice for wholesale partnerships. Since MVNOs are the fastest growing competitive force in the retail market, representing 16.5% of mobile subscribers, diversifying their wholesale options will drive competition, especially as prior to the merger, 90% of MVNO customers were on BT EE or Virgin Media O2 networks. The merger ‘levelled the playing field’ in this regard, offering VodafoneThree an opportunity to legitimately compete in such an exciting and novel market.