VODAFONE yesterday confirmed it was in merger talks with Three UK, setting the scene to become the largest mobile telecoms supplier in Britain.

The FTSE 100 firm said it was in discussions with CK Hutchison, Three's Hong- Kong parent company, with the view of combining the two UK arms, with Vodafone owning 51 per cent and CK Hutchison the remaining 49 per cent.

An industry analyst suggested the merger could be worth around £12bn, bringing together 27m customers - making it bigger than both Virgin Media O2 and BT-owned EE.

"By combining our businesses, Vodafone UK and Three UK will gain the necessary scale to be able to accelerate the rollout of full 5G in the UK and expand broadband connectivity to rural communities and small businesses," Vodafone said in an update yesterday.

It is understood that Vodafone and CK Hutchison are looking to ink the deal by the end of the year.

Insiders told Sky News that talks were at a "relatively advanced" stage, but still faced a number of regulatory hurdles from the likes of the Competition Markets Authority (CMA).

"Getting approval from the CMA will not be easy. There are concerns about investment levels falling and prices going up if there is a merger," Enders Analysis telcos expert Karen Egan told City A.M.

"But we haven't seen any evidence that supports concerns - taking out the duplication costs of a fourth operator actually lowers the cost-base of the industry and ultimately that helps to keep prices low," she explained.

By contrast, analyst at CCS Insight Kester Mann said the sentiment towards telecom mega deals "could finally be shifting".

"Many in the industry are pinning hopes on a more sympathetic stance after operators more than proved their worth in the pandemic," he said, explaining that the market is much more receptive towards consolidation than it used to be.

CK Hutchison successfully challenged the EU's decision to block the Three-O2 merger deal in 2020, with the decision later annulled. However, Mann was keen to emphasise that "the devil was in the detail" with any probes of a tie-up.

(c) 2022 City A.M., source Newspaper