AT LAST, an engaged tone. Two months after I wrote in this column that Nick Read, the Vodafone chief executive, was looking nervously over his shoulder for the sharp edges of his chairman's axe, the FTSE 100 telecoms giant is finally dialling up some meaningful merger activity.

Granted, its talks to combine its British operations with those of Three UK, owned by the Hong Kongbased conglomerate CK Hutchison, are not transformational for the wider company. And arguably a deal to acquire Talktalk would make more sense for Read.

Nevertheless, confirmation of my story that Vodafone and CK Hutchison are now in advanced discussions about a combination of their businesses should buy Read time with three potentially predatory - or, at the very least, intrusive - shareholders now firmly positioned on the company's share register.

According to its statement this week, a merger would enable the two companies to "gain the necessary scale to be able to accelerate the rollout of full 5G in the UK and expand broadband connectivity to rural communities and small businesses". Vodafone cited findings by the industry regulator, Ofcom, suggesting that on a standalone basis, they "lack the necessary scale to earn their cost of capital".

"The merged business would challenge the two already consolidated players for all UK customers and bring benefits through competitively priced access to a third reliable, high quality, and secure 5G network throughout the UK," it added.

Serious risks to Read's vision linger, however. The most pressing is the Competition and Markets Authority, which will inevitably want to refer the deal to an in-depth phase-II inquiry given that it will reduce the number of big players in Britain's mobile phone market from four to three.

It isn't only the fact that the tie-up will create the largest operator by number of customers, but as Vodafone and Three UK's rivals will point out, between them they will control 46 per cent of the UK's mobile spectrum.

Expect, therefore, merger remedies to include substantial spectrum disposals.

There's also the far-from-irrelevant question of whether Vodafone shareholders will back Read. By customer numbers, his business is twice the size of Three UK's, yet it is getting only 51 per cent ownership of their proposed joint venture.

With the activist shareholder Cevian Capital, Xavier Niel and Emirates Telecommunications Group all now disclosed among his shareholders, proving his dealmaking prowess will be key to Read's ability to remain in the Vodafone hotseat.

(c) 2022 City A.M., source Newspaper