Vodafone Group Public Limited Company (LSE:VOD) and the owner of Hutchison 3G UK Limited (Three UK) have accelerated talks about a deal to combine their British operations, paving the way for the creation of the mobile phone industry's biggest player by customer numbers. Sky News has learnt that Vodafone and CK Hutchison Holdings Limited (SEHK:1) are hopeful of striking an agreement by the end of the year to establish a joint venture or other form of business combination. People close to the talks said the discussions had intensified in recent weeks after a period in which they were thought to have stalled.

CK Hutchison, the Hong Kong-based conglomerate, has been exploring a sale of Three UK for some time, having concluded that the operation - which has nine million customers - was sub-scale in a sector that carries huge capital investment requirements for developing network infrastructure. It is said to have decided that a deal with Vodafone represents its best opportunity to help it play a role in market consolidation, with Vodafone's Chief Executive Officer, Nick Read, under pressure from shareholders to revive its flagging share price. Insiders said on October 3, 2022 that discussions between the two companies were now at a "relatively advanced" stage, though several significant hurdles remained outstanding and there was no certainty that a deal would ultimately be reached.

The most imposing of these is likely to be the regulatory scrutiny that a deal would face both from Ofcom, the telecoms industry regulator, and the Competition and Markets Authority. Industry sources said it was "almost certain" that the CMA would want to launch a full-blown, or Phase-II, merger inquiry. Most investigations of this kind lead to deals being blocked or requiring remedies such as asset sales.

One Vodafone investor queried whether such remedies, depending upon their scale, could undermine the logic of a tie-up. Market sources say CK Hutchison has indicated during deal-related talks that it was seeking a valuation for Three UK of roughly £6bn, though that predated the sale of some mobile towers assets, so it was unclear if the figure remained current. Mr. Niel said in an accompanying statement that he believed there were "opportunities to accelerate… the streamlining of Vodafone's footprint".

Vodafone and Three UK both declined to comment.