In May, the UK government gave conditional approval for the merger between Vodafone and Three, two of the four major mobile operators in the UK.
More recently, the new Labour government set out a revised view on the merger and is set to provide a final decision in December of this year. The merger would represent a seismic shift in the UK’s mobile operator landscape with the new entity, currently referred to as "MergeCo," becoming the largest mobile operator in the UK.
A merger of this size inevitably sparks differing opinions, particularly around market competition. Some argue it will reduce competition, while others, including the two operators involved, claim it will enhance it.
Perhaps the more compelling argument surrounding the merger is that it will accelerate investment in 5G infrastructure across the UK, a development that many agree is urgently needed.
However, to meet its goals and play a key role in advancing the UK’s 5G rollout, MergeCo will first need to undergo a significant restructuring. Before it can effectively upgrade its newly combined network, it will need to scale back and strategically streamline its infrastructure, ensuring it’s building on solid foundations.
The new network on the block
We have, of course, seen mergers of this magnitude before, notably in 2010 when T-Mobile and Orange formed EE, which at the time became the largest operator in the UK.
If this latest merger, first announced in June 2023, goes ahead, MergeCo will claim that title. A first step for MergeCo will be to unravel the complexity of inheriting infrastructure from two large networks developed independently and in direct competition, resulting in considerable overlap.
As a result, MergeCo will face duplicate cell towers, core infrastructure, backhaul, and even spectrum that cover the same areas, creating redundancy throughout much of the network.
Maintaining and powering networks is costly even in the best of times, but doing so with redundant infrastructure will simply be unsustainable.
For the merger to fulfill its true potential, MergeCo’s new network must be more efficient than the sum of its parts - financially, operationally, and in terms of sustainability. Without these efficiencies, MergeCo may struggle to generate the necessary resources and capacity to pursue its 5G ambitions.
Time to rationalize
To realize its goals, MergeCo must first streamline its existing network. ‘Network rationalization’ refers to reducing the physical footprint of the network by eliminating redundant or inefficient infrastructure.
This reduces operational overheads, frees up space for new infrastructure, and minimizes environmental impact. For MergeCo, this process will be crucial in freeing up resources for a faster and more effective rollout of 5G technology across the UK.
There will be numerous opportunities for MergeCo to remove redundancies, but none more so than across its many overlapping base stations. These are some of the most power-hungry and expensive network components, so optimizing these will significantly reduce energy consumption and operational costs without compromising service quality.
This consolidation would also deliver substantial energy savings, ensuring only necessary equipment is in use, which is not only beneficial for the bottom line, but also for the environment.
This trend of network rationalization is not unique to MergeCo - we are seeing it across the industry as operators restructure their footprint to improve efficiency and reduce costs. In most other cases, this is driven by advancements in hardware, enabling operators to achieve more with less.
BT Group, for instance, is reducing its local telephone exchanges from around 5,600 to just 1,000 as it transitions from copper to fiber networks.
For MergeCo however, the scale of rationalization is unprecedented. Had the companies remained separate, they would have needed to undertake similar initiatives independently.
As a merged entity, however, MergeCo has a unique opportunity to build a streamlined, high-performance network on a scale not seen before.
In this scenario, it's not just about removing redundant infrastructure; there's also the potential to strategically relocate and reuse valuable equipment from decommissioned sites. It will be a substantial undertaking, but one that could leave the new operator in a very strong position.
The circular opportunity
Network rationalization also presents MergeCo with a significant opportunity to embrace the circular economy, offering both environmental and financial benefits as the company consolidates its network, it will generate a large amount of surplus equipment.
Left unmanaged, this could become waste, either stored unused in warehouses or sent to landfill. However, by adopting circular economy principles, MergeCo could hugely mitigate the environmental and financial impact of decommissioning hardware.
Beyond recycling redundant equipment, the circular economy enables the refurbishment and reuse of equipment within the network, or the reselling of older hardware to other operators globally.
This last option could prove especially advantageous for MergeCo, as its equipment would not be retired due to age. Therefore, there could be significant demand – and value – for its components.
This approach provides financial returns but also supports sustainability goals by extending the lifecycle of equipment. The telecoms industry, particularly in the UK, stands to gain from a stronger circular economy.
Effective network
As MergeCo decommissions and resells surplus equipment, it provides other operators with affordable and sustainable opportunities for upgrading their networks.
While the Vodafone and Three merger offers significant potential, its success hinges on effective network rationalization. By strategically shrinking before expanding, MergeCo can realize substantial operational, financial, and environmental efficiencies. However, this process is not without its challenges and costs. To maximize returns from this effort and from the merger as a whole, embracing circular economy principles will be key.
Ultimately, the new entity can turn the challenge of network consolidation into an opportunity for financial gain, operational efficiency, and environmental sustainability.
There’s a long road ahead, but if MergeCo gets it right, it could become a lean, efficient, and innovative force within the UK telecoms market.