Vodafone tightens control of VodafoneThree after merger

Vodafone has agreed to take sole ownership of VodafoneThree. The move follows the merger of Vodafone UK and Three UK and comes as the combined operator continues to implement remedies tied to competition approval.

James Gray, Managing Director of Graystone Strategy, said the transaction gives Vodafone control of the business through a £4.3 billion share deal with CK Hutchison. The change was widely expected, he added, given Vodafone's group structure and its position in the joint venture.

The development comes at a sensitive time for the UK mobile market. Regulators approved the combination of the two operators subject to a series of conditions, including £11 billion of network investment over eight years, the continuation of certain lower-cost tariffs for three years, and the introduction of a regulated wholesale reference offer for mobile virtual network operators.

Wholesale access

That wholesale reference offer has been one of the most closely watched measures for smaller telecoms brands and potential new entrants. It created a structured wholesale deal that interested parties could request from Vodafone, providing a more formal route into the market for businesses that want to sell mobile services using another operator's infrastructure.

Gray said the ownership change was unlikely to alter the Competition and Markets Authority's earlier judgment. "My gut feel, based on what I've seen this morning, is probably not. Because all that's happened is the structure has changed of the trading brand," said Gray.

He added that VodafoneThree must submit an independent report after its first year showing what had changed and how the wholesale reference offer was working.

Competition impact

Debate around the merger has centred on whether reducing the number of network owners in the UK would weaken competition. Gray said the effect so far appeared limited, although he noted the merger was still at an early stage.

"I don't think competition has been materially impacted by the merger, although to be fair the merger is still relatively young as mergers go," said Gray.

He pointed to the fact that Vodafone and Three still trade as separate brands, leaving consumers with what appears to be a four-brand market even though two of those brands now sit under the same ownership structure. He also said there had been no significant rise in mobile bills so far.

In the MVNO market, however, both Gray and Mike Mills, Managing Director, Service Provider, at Gamma Communications, described a noticeable increase in activity. Mills said Gamma was seeing sharply higher interest, while Gray said more brands appeared to be exploring launches in the UK.

Among the names mentioned were Monzo and Klarna, which have signalled plans in the sector, and Revolut, which has already launched. Gray also referred to smaller brands entering the market, including Zim, Tech Money and Rocket.

Network rollout

Another key test for VodafoneThree is whether it can deliver the network investment promised as part of the merger approval. Gray said specific rollout targets were attached to the £11 billion spending commitment and that failure to meet them could extend some of the remedies.

Both speakers said they had seen signs of improving coverage. Gray said consumers on Vodafone and Three appeared to be getting better service as the operator used multi-operator core network technology to allow roaming between sites inherited from the two businesses.

"Again, speaking as a consumer on the Vodafone network as it happens, I've seen improvements, there's no doubt about that," added Gray.

Mills also said he had observed stronger local coverage and argued that VodafoneThree appeared to be carrying out the integration work it had set out to do. He added that the business had kept its MVNO operation focused during a complex merger involving both technology and organisational change.

Gray said the scale of the work should not be underestimated because it extends beyond radio networks into operational and business support systems, as well as brand integration.

Busy market

Much of the discussion focused on how the wholesale market has developed since the merger. Mills said the UK market was as dynamic as he had seen it in a decade, with activity spanning financial services, alternative network providers and brands targeting different age and income groups.

Gray shared that view and pointed to wider market forecasts. Research suggests the global MVNO market could reach USD $155 billion by 2031, with Europe accounting for USD $65 billion, he said.

He said alternative network providers had a clear rationale for launching mobile offers because they could sell more services to existing broadband customers. Retail was another area drawing attention, with Tesco Mobile cited as the UK's largest MVNO at about five million customers and Lidl highlighted as a retailer that had discussed expansion across multiple territories.

Gray argued that retail mobile offers were becoming more closely tied to loyalty schemes, making them more relevant to a grocer's core business. That could increase interest among major supermarket groups competing for share in a tough consumer market, he said.

Financial technology groups are also testing the model, helped by wider adoption of eSIM. Gray said that allows brands to add mobile services to a digital customer journey with very little friction, making travel SIM products an obvious starting point.

He said Revolut had been successful in that area before moving into local mobile offers, but added that it was too early to judge the long-term strength of the trend in more developed European markets.

Looking ahead, Gray said he expected more large consumer brands to enter the market because wholesale access had become easier and consumers were less attached to traditional network operators than in the past. "I would be very surprised if we didn't see at least one of the big grocers come to market," he said.