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Vodafone to merge with 3 for £11bn standalone 5G network

Vodafone to merge with 3 for £11bn standalone 5G network

Business news |
By Nick Flaherty



Vodafone has announced it long awaited merger with rival network 3 in the UK with plans to roll out a new 5G network.

The deal with CK Hutchison Group Telecom Holdings, a wholly owned subsidiary of CK Hutchison Holdings in China, will see Vodafone own 51% of the combined business and CKHGT 49%.

The company, currently called MergeCo, plans to spend £11 billion in the UK over the next ten years on a new 5G SA standalone network that does not rely on the existing 4G/LTE infrastructure. This can provide a six-fold increase in average data speeds by 2034 says the company and reach more than 99% of the UK population with a 5G network.

This is in line with the UK government’s Wireless Infrastructure Strategy, which sets ambitions for 5G in all populated areas by 2030. Building the standalone network will also ensure rural communities across all four nations are not left behind.

MergeCo will also install more energy efficient 5G equipment and replace less power-efficient 2G and 3G systems, while providing every school and hospital in the UK with access to standalone 5G by 2030, says Vodafone, playing to the political drivers of the UK government during UK Tech Week.

“Today’s announcement is a major milestone for CK Hutchison and for the UK. Three UK and Vodafone UK currently lack the necessary scale on their own to earn their cost of capital,” said Canning Fok, Group Co-Managing Director of CK Hutchison. “This has long been a challenge for Three UK’s ability to invest and compete.” 

The combined business will also offer fixed wireless access for home broadband via the 5G network to 82% of households by 2030, complementing Vodafone’s full fibre footprint.

No cash is changing hands, with Vodafone UK and Three UK businesses contributed with differential debt amounts. Vodafone UK will contribute £4.3bn and Three UK will provide £1.7bn for the £6bn investment in the first five years. The deal will see £700m of annual cost and capex synergies by the fifth full year post-completion, with an implied valuation of £7 billion for the merged company.

Current Vodafone UK CEO Ahmed Essam will become MergeCo CEO, and current Three UK CFO Darren Purkis will take the role of MergeCo CFO.

Waiting on approvals

The deal is binding between the two companies but is subject to regulatory and shareholder approvals, which may be difficult as this reduces the number of operators to three alongside EE/BT and O2/Virgin Media. 

“The merger is great for customers, great for the country and great for competition. It’s transformative as it will create a best-in-class – indeed best in Europe – 5G network, offering customers a superior experience. As a country, the UK will benefit from the creation of a sustainable, strongly competitive third scaled operator – with a clear £11 billion network investment plan – driving growth, employment and innovation. For Vodafone, this transaction is a game changer in our home market. This is a vote of confidence in the UK and its ambitions to be a centre for future technology,” said Margherita Della Valle, Vodafone Group Chief Executive.

“Together, we will have the scale needed to deliver a best-in-class 5G network for the UK, transforming mobile services for our customers and opening up new opportunities for businesses across the length and breadth of the UK,” said Fok. “This will unlock significant value for CK Hutchison and its shareholders, realise material synergies, reduce net financial indebtedness and further strengthen its financial profile.”

vodafoneandthree.uk 

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