The new mobile mega-network trying to solve Britain's terrible coverage

Telegraph

2 days ago

As lobbying ramped ahead of their £15bn mega-merger, Vodafone and Three embarked on a campaign of self-denigration.
Margherita Della Valle, Vodafone's chief executive, repeatedly criticised Europe's lacklustre 5G rollout. Three boss Robert Finnigan went further, saying his company's investment in its mobile network was 'unsustainable' without the tie-up.
Talking down Britain's 5G coverage was a bold strategy for two of the country's four mobile operators. The deal has been bogged down by protracted regulatory scrutiny and as Vodafone tussled with CK Hutchison, Three's owner, for control of their new joint venture.
Two years after it was first announced, however, the tie-up has finally completed and the strategy appears to have paid off. Now, bosses are promising a revolution for UK mobile customers.
When Vodafone and Three first unveiled plans to merge to create the UK's largest network operator, they insisted the deal was 'great for customers, great for the country and great for competition'.
Yet the announcement, which itself followed more than a year of private discussions, marked only the beginning of a drawn-out regulatory process that would last 18 months.
At the heart of investigations were fears that the merger, which reduces the number of UK operators from four to three, would push up prices for consumers. Regulators have historically been sceptical about telecoms consolidation and a previous attempt to merge Three with O2 was blocked by the European Commission in 2016.
Unions and China-sceptic MPs also sounded the alarm about granting Hong Kong-based CK Hutchison access to sensitive government contracts, as well as accusations of union-busting at the conglomerate's other companies including Felixstowe port.
Ultimately, in December, the Competition and Markets Authority (CMA) gave the green light to the deal provided the two companies agreed to a number of legally binding commitments, including a pledge to invest billions into their combined 5G network, as well as guarantees around some tariffs and wholesale rates for so-called MVNOs that piggyback off major networks.
Matthew Howett, the founder and chief executive of Assembly Research, says the lengthy wait for approval was too long.
'Two years is a long time when you've got operators who are saying that they can't meet their cost of capital and that they're in trouble and need to do something otherwise they're going to exit the market and consumers suffer,' he says.
However, he adds that the companies 'probably benefited from the delay because of the fact we got a new government that was focused on investment and growth and a realisation from the CMA that coverage isn't where it should be'.
Karen Egan, at Enders Analysis, argues that the regulatory process 'was always going to be thus'.
'It's a big move and I think the whole country needs to feel like it's been properly thought through,' she says. 'They came to the right decision and it's good that they took their time.'
Yet even after CMA approval was secured, the deal was beset by further delays. The two companies had been aiming to complete by May 1 and a glitzy launch event was organised on a rooftop near Liverpool Street, but this deadline was pushed back.
The source of the delay, according to multiple industry sources, was CK Hutchison. One describes it as a 'Hutch roadblock', while another claims the company, which was founded by Li Ka-shing, Hong Kong's richest man, was making aggressive demands at the negotiating table.
Even joint ventures must navigate self-interest
Analysts say there is likely to have been a tussle for power and control between the two partners as the merger talks drew to a close. Vodafone will initially hold a 51pc stake in the joint venture and has the option of taking full control of the combined business after three years. However, the Hong Kong company is likely to have been keen to hold its ground.
'I suppose it's inevitable in these joint ventures that everyone's going to be looking after their own self-interest, particularly as the final touches are put to the agreement,' says Egan.
'I imagine that [CK Hutchison] are especially nervous about being easily shunted into the background unless they're on the front foot and protecting their interests at every opportunity.'
Another potential source of conflict, according to analysts, could be costs. The newly merged company is expected to pay around £250m to Vodafone Group for central functions such as customer service – a figure that CK Hutchison will probably be keen to cut.
The delay caused frustration within Vodafone, particularly as the company gears up for its two major summer sponsorships – Glastonbury and Wimbledon.
Despite its painful genesis, however, most in the industry are optimistic about the transformative effects of the merger and its ability to unlock network investment for 27m customers.
Most crucial is the prospect of an improvement to the UK's shoddy mobile coverage, which has been a key priority of the Labour Government under telecoms minister Chris Bryant, as well as regulator Ofcom.
'Clearly the UK's coverage position is not where it should be relative to other countries,' says Howett.
Della Valle has insisted that the commitment to invest £11bn over the next decade will ensure not-spots are eliminated, though bosses have cautioned that customers are unlikely to see an instant improvement.
However, the investment pledge is a first for the industry, and questions remain about how effectively Ofcom will be able to monitor and enforce it. What's more, could the commitment soon become a millstone around the new company's neck?
At BT, the deal will mark a step change as the new company leapfrogs EE to become Britain's largest network.
The former monopoly is viewed by analysts as a 'relative loser' from the deal, so is likely to step up its own network investment. Executives are also considering the launch of a new value mobile brand to beef up the company's offering at the lower end of the market.
Publicly, however, BT is sanguine. Speaking to reporters last week, BT boss Allison Kirkby said: 'We're well ahead of the rest, so we don't feel the need to change our current plans.'
Kester Mann, an analyst at CCS Insight, says the merger 'cements one of the most important structural changes in the history of UK mobile'.
But he adds: 'The merging parties have little time to celebrate. Now, the hard work really begins as they set about implementing the many connectivity improvements they've long promised.
'For many UK mobile users that have struggled for too long with poor signal, the upgrades can't come soon enough.'