A Vodafone store in Barcelona
Vodafone aims to placate both unhappy customers and politicians demanding better mobile coverage with a proposed acquisition of Three © Bloomberg

In the UK, mobile signal quality is a persistent complaint regardless of the technologies available. It is less about getting 4G or 5G phone coverage, and more whether you have any G at all.

Vodafone hopes to placate both unhappy customers and politicians demanding better mobile coverage with a proposed acquisition of smaller rival Three, enabling £11bn of network investment. It reiterated its plans this week in a network-sharing agreement with rival Virgin Media O2. Lutz Schüler, the boss of VMO2, noted his support for the deal. But it is the Competition and Markets Authority that really needs convincing.

To do that, the deal partners still need to overcome the efforts of their largest competitor. BT Group has been impressing upon the CMA that sharing is not necessarily a good thing. In the first phase of its investigation, the CMA worried that the Vodafone/VMO2 “may gain access to its competitors’ commercially sensitive information” by sharing networks. While Vodafone and VMO2 have had a network-sharing agreement for some time, so have BT/EE and Three.

Line chart of Share prices and index rebased in pence terms showing Vodafone's languishing share price

Of course, the CMA’s main concern will be the merged company’s impact on consumer tariffs and on its wholesale customers, such as Tesco Mobile and Sky Mobile. Overall, wholesale accounted for about 17 per cent of the market in 2023, according to New Street Research data. Vodafone has promised not to change its pricing strategy. That does not mean tariffs will not rise in real terms — they will by the inflation rate plus 3.9 per cent — but only that the operator says it will not gouge its subscribers.

The real question is whether the next government can reconcile steadily rising real mobile tariffs with the poor mobile service that still results. Last year, across 25 European markets, the UK’s 5G download speeds ranked 21st, according to telecom researchers Opensignal. Coverage is similarly poor. Whoever is in charge after Thursday’s election will drone on about the UK’s attractiveness to tech companies and the promise of artificial intelligence. Just try and call anyone to boast about this.

If granted their wish on consolidation, Vodafone/Three promises to remedy this with investment. It says it will spend £11bn over the next decade on three things: integration of the Vodafone and Three networks, modernising what remains and then later adding to capacity. Yet the market, according to data from S&P Capital IQ, expects its group capital expenditure to be in the area of £6bn annually through 2028.

That will not be lost on the CMA. It suggests Vodafone’s promise of a consolidation payback lacks ambition.

*This note has been changed to reflect that the estimated group capex figure translated into pounds from euros would be £6bn annually.

alan.livsey@ft.com

Copyright The Financial Times Limited 2024. All rights reserved.
Reuse this content (opens in new window) CommentsJump to comments section

Follow the topics in this article

Comments