Virgin Media O2 to buy spectrum from Vodafone/Three under new deal

The UK mobile operators have essentially extended their existing network sharing arrangements, regardless of what happens with the Vodafone/Three merger. But the spectrum transfer element of the upgraded deal is the newsworthy item here.

Clearly, Vodafone and Three are hoping to smooth the regulatory process by offering spectrum concessions now. A spectrum imbalance in the UK market resulting from the merger has been one of the key criticisms levelled by opponents of the deal.

BT, whose EE unit will lose its crown as the UK's biggest mobile operator if the merger goes ahead, picked up on the spectrum issue in its response to the Competition and Markets Authority's (CMA's) probe, published last month. Specifically, it noted that Vodafone/Three would have a disproportionate share of spectrum and capacity in the UK, warning of a lessening of competition and resulting threat to investment in the market.

Virgin Media O2 and the CMA, amongst others, have also highlighted surplus spectrum as being a competitive threat in the case of this tie-up. But now it is on the receiving end of the airwaves, VMO2 is understandably appeased.

"We are extending and bolstering elements of our existing network sharing arrangement, while also ensuring there is a robust, balanced and functional structure in place for the long-term should Vodafone and Three's proposed merger gain consent," said Lutz Schüler, CEO of Virgin Media O2.

"We believe that this new agreement addresses the issues we have voiced and the CMA outlined in its initial decision, and will now continue our engagement with the regulator in this spirit," Schüler said.

Meanwhile, Vodafone's European Markets chief executive Ahmed Essam shared a litany of platitudes we have heard many times before about the purported benefits of the merger to UK customers.

"The proposed merger, together with this agreement, will boost competition by establishing a strong third player in the UK mobile market and will improve the balance of spectrum holdings, levelling the playing field between the UK’s mobile operators," he concluded.

The regulators have heard it all before, many times. But this spectrum sale agreement constitutes actions and not just words, and is probably one concession in the right direction for the telcos.

Having agreed to merge their UK businesses a year ago, Vodafone and Three are battling hard to get the authorities onside. The CMA launched the first phase of its investigation into the impact of the deal in January and, unsurprisingly, moved on to a more in-depth probe in April. It has until September to make a decision on whether it will allow the tie-up to go-ahead.

Vodafone did not disclose exactly what the spectrum divestment to VMO2 will look like. It said it will allow the operator to acquire airwaves "at market value" from the merged entity, but did not specify how much spectrum or which frequency bands. However, it presumably has a good idea of what it needs to do to reduce that imbalance.

Vodafone also shared very little about the updated network sharing deal with VMO2. But it too could have an impact on the regulatory process, proving to the authorities that a new merged operator would still play nicely with its rivals. Either way, this is all about getting the Three merger over the line, one way or another.