• The long-planned merger of Vodafone UK and Three UK has been completed
• This means the UK fixed and mobile market will now be served by three large MNOs, and it remains to be seen how VodafoneThree will differentiate itself from rivals BT/EE and VMO2
• The new entity’s CEO, Max Taylor, certainly has his work cut out in bringing together two networks, and two very different company cultures 

After what seems like an eternity, two of the UK’s mobile operators, Vodafone UK and Three UK, have finally completed their long-planned £16.5bn merger, which was first announced in June 2023. 

Vodafone Group CEO Margherita Della Valle was among a number of executives to trumpet the long-awaited completion of Vodafone UK’s merger with Three UK, writing on LinkedIn that the newly minted VodafoneThree will “deliver even more, providing wider coverage, faster speeds, and better-quality connections to everyone”. 

All this remains to be seen, of course, and much work still lies ahead. In the meantime, the newly merged mobile network operator (MNO), under CEO Max Taylor, will be hoping to quickly establish its position and be a strong competitor to rivals BT/EE and Virgin Media O2 (VMO2). 

The story so far

First, a quick update on what has just happened. On Monday, Vodafone Group and CK Hutchison said the merger of their respective UK businesses was completed on 31 May and the combined business will be known as VodafoneThree with a total of 29 million customers.

The move comes after the merger was rubber-stamped by the UK’s Competition and Markets Authority (CMA) in December 2024 after wide industry consultation and lengthy deliberation by an independent inquiry team. Vodafone retains a majority shareholding of 51%, while CK Hutchison holds the other 49%.

In the release, some familiar targets were reiterated, such as the plan to invest £11bn in the 5G standalone network over the next 10 years. It was added that capital expenditure (capex) will amount to £1.3bn in the first year of operation. Cost and capex synergies are set to reach £700m per year by the fifth year after completion. The transaction is expected to be accretive to Vodafone’s adjusted free cash flow from full year 2029 onwards (Vodafone’s financial year ends on 31 March). 

VodafoneThree starts life with £6bn in net debt, of which £4.3bn comes from Vodafone UK and £1.7bn from Three UK. The two parent companies have agreed to contribute £800m of equity “to support the working capital requirements of the business”, with Vodafone coughing up £408m. Around £600m of this funding will be contributed shortly after closing, with the remaining £200m to follow in the first quarter of 2026. 

As already mentioned, VodafoneThree will be led by Taylor, who was previously CEO of Vodafone UK. In addition, Three UK’s chief financial officer, Darren Purkis, has taken on the same role at the new entity and Kelly Barlow, the former head of new business development at Vodafone UK, will be in charge of strategy and portfolio.

Andrea Donà is responsible for networks and Nick Gliddon will oversee strategy and sales for business customers. Jon Shaw takes on consumer operations and Rob Winterschladen is responsible for the consumer business. You can check out the full management team here. Of the twelve-strong team, three were formerly at Three UK and nine were at Vodafone UK. 

In her prepared remarks, Della Valle also noted that the transaction “completes the reshaping of Vodafone in Europe” following the recent sales of Vodafone Italy to Swisscom and Vodafone Spain to Zegona Communications. Germany still remains a bit of a worry, but that is for another day.

Strategies, brands and investment plans

It is of course early days but key questions are already being asked, such as how VodafoneThree will differentiate itself from EE and VMO2, what are its particular strengths, whether or not it will be able to stick to its investment targets, and how rivals will respond.

Kester Mann, director of consumer and connectivity at analyst and research firm CCS Insight, has been closely following the merger negotiations since the start. In his view, VodafoneThree has the assets to challenge EE’s long-running claim to offer the UK’s “best and most reliable mobile network”. 

“This will take time and there will inevitably be bumps along the way, but at some point, EE may need to think carefully about how to evolve the narrative about its network,” said Mann.

In terms of its strategy, he said the new MNO will seek to gain a greater presence in the mobile virtual network operator (MVNO) market. “With capacity to fill and commitments on wholesale to meet, it will be keen to acquire new virtual providers. This could put most pressure on Virgin Media O2, which dominates this part of the market.”

Mann added that combining to form a new scaled provider “will give the joint venture greater clout to push harder into converged services. Although it will remain a mobile-first provider, it can challenge rivals BT, Virgin Media O2 and Sky by leveraging wholesale fixed-line partnerships and its own fixed wireless access deployments.”

Paolo Pescatore, founder and analyst at PP Foresight, nevertheless warned that convergence “still represents the holy grail, but no one is executing well in this area. The approach towards convergence needs to be redesigned with a focus on subscriptions rather than [being] product or service led”. 

In terms of the enterprise market, Mann noted that Vodafone UK “has an already strong position here” and its new network and spectrum assets, “combined with the influx of over a million business customers from Three, will further bolster its standing.” 

Here, Pescatore said it will “take time to build credibility and gain trust among businesses. In two to three years, VodafoneThree will hope to rival BT/EE’s network position”. He also opined that the investment targets “will not be difficult to hit; I always argued that it was on the lighter side and the regulators should have pushed for more”. 

Mann said it’s important to note that UK regulator Ofcom and the CMA will independently monitor and enforce the pledges that have been made.

“The company will be keen to live up to its word, having promised many things to win over the regulators. But Ofcom has no prior experience of such a role and it, therefore, raises some tricky questions about how the merged company would be penalised if it failed to meet any of its targets. Implementing a fine, for example, could harm its ability to invest, undoing a major goal of the merger,” he said.

Looking further ahead, Mann commented that the new MNO will eventually need to decide about its 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, I 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,” he said.

At the same time, Pescatore argued that a multi-brand approach “will cater for specific market segments, providing plentiful opportunities for customer growth and selling more services.”

Meanwhile, Mann pointed out that CEO Taylor faces a number of other challenges, such as managing two different company cultures, balancing the ambitions of both parent companies and maintaining staff morale amid concern about job security. 

“The merging parties have little time to celebrate. Now, the hard work really begins as they set about implementing the many connectivity improvements they’ve long promised. For many UK mobile users that have struggled for too long with poor signal, the upgrades can’t come soon enough,” he concluded.

- Anne Morris, Contributing Editor, TelecomTV