Hutchison briefed UK Govt as Vodafone deal set for regulatory scrutiny
CK Hutchison’s senior leadership met British government officials last month to seek political support to merge its Three UK mobile network with Vodafone UK in a deal set to receive intense regulatory scrutiny, three sources said.
Vodafone said in October it was in talks with its rival to combine their British networks, with a planned ownership split of 51% Vodafone and 49% Hutchison, the Hong-Kong telecoms-to-ports conglomerate part-owned by billionaire Li Ka-shing.
Antitrust regulator the Competition and Markets Authority (CMA) will scrutinise the deal, which would reduce the number of networks from four to three.
The government, however, on Tuesday announced an ambition to deliver stand-alone 5G to all populated areas of the country by 2030, driven by a “pro-investment framework”, and confirmed its “openness to market consolidation”.
Hutchison’s co-managing director Canning Fok met officials in Prime Minister Rishi Sunak’s government, three sources said, with one describing the meeting as positive. That source said Ka-Shing’s son and company chairman, Victor Li, was present.
Fok, who said last month protracted talks were in the final stage, also met Vodafone’s interim Chief Executive Margherita della Valle in a push to get the deal over the line, two of the sources said.
Spokespeople for Three UK and Vodafone declined to comment. A spokesperson for Sunak’s office said they did not recognise talk of a meeting.
The two companies will say they need to join forces to afford to roll out the next generation, stand-alone 5G networks the government wants.
They could make commitments on network investment when they announce the deal, two of the sources said. They were also considering pledges on customer pricing, although this is less likely, the sources said.
The deal is likely to be announced as millions of customers on all four networks face double-digit rises in their bills, focusing regulators’ minds on retaining a competitive market.
The CMA’s boss Sarah Cardell said in a speech entitled “UK merger control in 2023” in February the risks from anti-competitive deals should not be understated.
A mininum of four operators in major markets has long been a tenet for regulators. An attempt by Hutchison to acquire Telefonica’s UK unit O2 seven years ago was opposed by Britain’s telecoms regulator and blocked by the European Commission.
The government said in its statement on Tuesday there was no “magic number” of mobile operators, while noting all decisions on consolidation were for the CMA.
A combined Vodafone-Three would leapfrog BT’s EE and Virgin Media O2 (TEF.MC), to become market leader, with 27 million customer connections.
Vodafone and Hutchison have invested heavily in 4G and 5G in recent years, but have said their financial returns are insufficient to continue doing so.
“We are confident our argument is very strong, neither company delivers a return on the cost of capital,” one senior executive told Reuters. “The deal would create stronger competition to drive the roll-out of 5G.”
All of the sources requested anonymity because of the sensitivity of the talks.
Three UK’s chief executive Robert Finnegan said last month that high levels of investment would be needed to deliver the networks that Britain needs, and that levels of capex spread across the current four individual players were unsustainable. Reuters
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