British telecommunications giant Vodafone (VOD.US) and Virgin Media O2 have reached a new network sharing agreement in the UK, including a crucial spectrum transfer plan.
According to Futu Securities, British telecommunications giant Vodafone (VOD.US) and another telecommunications service provider, Virgin Media O2, have reached a new network sharing agreement in the UK, including a crucial spectrum transfer plan, which could greatly assist Vodafone and mobile operator Three's merger in obtaining formal approval from UK regulators.
It is understood that a large-scale merger plan worth $19 billion between Vodafone's UK business and the UK subsidiary of China's Ck Hutchison, Three, is being thoroughly investigated by the UK Competition and Markets Authority (CMA). If Vodafone successfully merges with mobile operator Three, it could become the largest mobile operator in terms of revenue scale in the UK.
According to the long-term agreement reached by Vodafone and Virgin Media O2, the expanded "Vodafone-Three" entity will sell spectrum to Virgin Media O2. The two telecommunications companies jointly stated that this will greatly improve mobile connectivity, customer choice, and market competition.
Some analysts speculate that this move may help resolve UK regulators' concerns about the large-scale merger plan, which will reduce the number of mobile network operators in the UK from four to three.
"We believe that this newly reached agreement addresses the issues that we raised, as well as some of the issues outlined by the CMA in its initial decision," said Lutz Schuler, CEO of Virgin Media O2, in a statement.
Vodafone said that this network sharing agreement will allow Virgin Media O2's customers to benefit from the company's promised £11 billion 5G network investment plan, which will be implemented after its merger with Three is formally approved.
Ahmed Essam, CEO of Vodafone's European market, said: "The proposed merger and this reached agreement will promote competition by establishing a strong third company in the UK mobile network market."
Obtaining formal approval from UK regulators for the merger between Vodafone and Three will be a difficult challenge. Before Brexit, Three attempted to acquire O2, but was blocked by European regulators, one of the main reasons being that the number of mobile network operators in the UK would be reduced from four to three. However, Vodafone and Three insist that a well-funded mobile operator can better participate in competition in the UK domestic mobile market.
The UK Competition and Markets Authority (CMA) expressed concern in March that the merger could lead to a significant reduction in competition for UK consumers and businesses, and hoped to verify the company's claims that the deal would benefit investment. The CMA stated that the transaction could cause mobile network prices to rise, lower user experience quality, and affect investment in the UK mobile network. The agency is also concerned that the transaction may affect smaller virtual mobile networks, including SkyMobile, Lebara, and LycaMobile.