Mobile phones giant Three could pare back investment in its network to “minimum levels”, unless regulator Ofcom clears its £32billion takeover by Vodafone, sources warn.
The Competition & Markets Authority is carrying out a detailed probe into the deal, as it fears it would result in substantially reduced competition in the mobile telecoms market. Vodafone and Three are the third and fourth biggest players respectively and if they were to combine, they would leapfrog market leader EE and Virgin Media O2.
The regulator will produce its initial findings and possible competition remedies in July, with its final report due in mid-September.
Three and Vodafone believe that together, they would have the scale and financial resources needed to invest more than £11billion to upgrade the UK’s 5G infrastructure and compete more effectively with BT’s EE and VMO2. They believe that Britain has subpar telecoms infrastructure because the two market leaders do not have a third scale player to provide the competitive pressure needed for them to invest in their networks.
Sources familiar with the situation point out that Three has not been able to produce a return since 2020 due to the £2.3billion it has invested during that time in its network and its increasing cost base. “Hutchison (the owner of Three) has had years of losses and without the deal, it will have to pare back investment so it can get a return,” said one source
Last year, while Three saw its revenues rise 3 per cent to £2.6billion, its earnings before taxes, interest, depreciation and amortisation fell 21 per cent to £402million. They were eclipsed by its capital expenditure of £454million, which went primarily on network improvements.
At its first quarter trading update earlier this month, Three said that its revenues had climbed 9 per cent to £664million, while its active customer base had increased 3 per cent to 10.6million. Churn, or the percentage of customers that leave, was practically flat at 1.5 per cent.
Chief executive Robert Finnegan said that while Three had a “solid” start to 2024, it is still feeling the effects of inflation, in particular consumers switching to lower value products, such as sim-only deals. He added: “Merging with Vodafone is vital to give us the required scale to invest, grow and compete to create a best-inclass network for the UK.”
