The great movement to restructure British telephony, long awaited, finally seems to materialize. Vodafone, the third operator, with 24% market share, and Three, the fourth with 15%, announced their merger on Wednesday June 14.
Together, if the competition authority gives the green light – which remains very uncertain – they will become the market leader, respectively ahead of EE (33% market share) and O2 (28%). The United Kingdom thus becomes a country with only three major mobile operators, unlike France, which has four (Orange, SFR, Bouygues Telecom, Free) but similar to many other European countries.
Three, which belongs to the Hong Kong conglomerate CK Hutchison, has been struggling for years. Launched in 2003, when 3G was developing, the small thumb of mobile telephony lost a lot of money for a long time, before finally finding a niche playing on low prices for large data packages. But the arrival of 5G, which requires very heavy investment, again poses a serious problem of profitability.
A negative cash flow
“In an industry characterized by very high fixed costs, the smallest player [Three]ended up in a negative spiral of small size, leading to low investment returns, leading to low investment, bad reputation and even smaller size”, writes Karen Egan, an analyst at Enders Analysis, a research firm specializing in media and telecoms. For three years, the network has even recorded a negative cash flow, she adds.
Opposite, Vodafone, present in 21 countries, is much bigger but also has problems with profitability. Its new Chief Executive Officer, in office since 1er January, has just announced 11,000 job cuts.
The announcement takes place in a context of consolidation between mobile and fixed networks. BT, the incumbent telephone operator, bought EE in 2016, while cable-carrying Virgin Media and O2 merged in 2021.
more than one “merger”, the announcement of this June 14 looks more like an acquisition of Three by Vodafone. The second will own 51% of the new group, and he has an option to buy CK Hutchison’s shares (while CK Hutchison has a put option). The chief executive of the new entity will be Ahmed Essam, who currently heads Vodafone UK, while the chief financial officer will come from Three.
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