Analysts signal possible Vodafone and Three merger

Vodafone are looking to merge with big UK operators and have even spoke about merging in other European countries

Vodafone has reportedly been in talks with other telecoms companies over potential consolidation, with Three UK a possible target.

Telecoms consultant James Gray, who has worked in the industry for more than 25 years, says he isn’t surprised that Vodafone could consolidate due to its history of acquisitions.

“Telecoms is quite a tough market at the moment, as infrastructure costs are going up, everyone’s deploying 5G and revenues aren’t particularly increasing,” he said. 

“Consolidating is a good way to mitigate some of those increasing cost risks.”

Three UK CEO Robert Finnegan has been vocal about the need for consolidation in the sector, but it is unclear whether Three is seeking to merge with Vodafone.

“Three is very strong in consumer and Vodafone is very strong in enterprise, so they’ll be bringing new customers in if they merge,” said Gray.

Risks of consolidation

But he added that consolidation faces hurdles due to the possibility of regulatory intervention, or risks in terms of conditions for maintaining consumer choice and competition.

He believes that receiving the green light means the merger between O2 and Virgin Media has already seen some success, but that it will take longer to assess the partnership’s achievements.

Gray thinks, meanwhile, that there are pros and cons to M&A activity. “I think consolidation means there is less choice,” he said.

“Losing that challenger dynamic over time may reduce competition and reduce the price declines that customers have enjoyed.”

At the same time, Gray said: “I think the flip side is that there will be economies of scale for the operators; when four becomes three, there’s the cost of running three networks rather than four.

“There is definitely the potential that operators will have lower costs and those might be passed on to the consumer.”