Australian mobile operators Vodafone and Hutchison Telecom said Monday they have agreed to merge operations, closing the gap between second and third place in the market.

Under the agreement, both Vodafone and Hutch, which operates under the “3” brand will have equal ownership of the 50-50 joint venture, to be known as VHA.

To equalise the value difference between the respective businesses, Vodafone will receive a payment of A$500m from VHA.

VHA will market its products and services under the Vodafone brand, but will retain exclusive rights to use the 3 brand in Australia. Under existing network arrangements and planned network build, VHA will operate a mobile network with at least 95 per cent population coverage, of which 63 per cent will have access to 3G services.

Upon completion of additional network roll outs, VHA’s 3G population coverage is planned to increase to 95 per cent.

Other benefits of the deal include economies of scale across procurement, product development, IT, network, commercial operations and administrative cost savings to the tune of A$2bn.

The new management line up will see Nick Reed, CEO of Vodafone Asia-Pacific & Middle East Region, take the position of chairman; Nigel Dews, CEO of Hutch Australia take over as CEO; Dave Boorman, Vodafone’s CFO, as CFO; and Russell Hewitt, CEO of Vodafone, take the place of non-executive director.

According to Informa’s WCIS database, Vodafone Australia had 3.85 million subscribers at the end of 2008, while Hutch had just over 2 million, making a strong third placed player behind market leader Telstra with 9.7 million and Optus with 7.58 million.

Industry analyst Ovum believes that this deal is neither a casualty of the global financial crisis, or the beginning of a 3G exit strategy for Hutchison, although it may raise prospects of more deals between the carriers. Rather the deal will create a player with enough scale to sustainably compete in the Australian market.

Ovum has believed for some time that three national mobile network operators was the most likely long term scenario in Australia. The combined scale of this new entity, with the global strengths of Vodafone and Hutchison, will provide the necessary elements for a third strong competitor able to compete and invest long-term in the Australian market place,” said Nathan Burley, analyst at Ovum.

According to Burley, the operators’ customer bases are largely complementary, 3 has strength in postpaid and non-voice while Vodafone has strength in prepaid.