The boss of Vodafone has suggested that he is on the hunt for more deals despite a flagship acquisition in Germany failing to yield growth.
Nick Read, the telecom company's chief executive, raised the prospect of a wave of UK dealmaking even as it unveiled a fall in German revenues, three years after the £18bn acquisition of assets from Liberty Global turned the European nation into its biggest market.
However, he argued that cutting the UK market from four major mobile phone operators to three would be “healthy for the sector, healthy for investment and still have good competition”.
Mr Read said: “I really can’t comment on press speculation. What I would say is that if I look at a higher level at the UK market my view is that it remains a very fragmented market which is resulting in poor returns and under investment.
“You could look at the UK and say it needs two fixed networks, which it has, and three mobile networks to give a healthier structure for investment going forward.”
In its quarterly results, Vodafone said its revenues had increased 1.6pc to €11.3bn (£9.6bn).
Its Germany business lagged behind, with revenues falling slightly, but the UK service revenues grew by 6.5pc after increases to contract prices and a rebound in roaming revenues as holidays kicked off again following the coronavirus pandemic.
Germany slowed amid new regulations that block automatic contract renewals for phone and broadband contracts. Vodafone said it had lost 34,000 cable broadband customers and 79,000 TV customers as a result of the changes.
Any merger between Three and Vodafone would likely provoke scrutiny into whether the deal harms competition and consumers.
The combined companies would have around 27m customers in Britain and vast assets in mobile spectrum.
It would “instantly become the number one player in mobile,” analysts CCS Insight said.
Brussels previously blocked a UK merger between mobile operators Three, controlled by Hong Kong billionaire Li Ka-Shing, and Telefonica-owned O2 in 2016. However, that decision was ultimately overruled by an EU court after the deal fell apart, opening up the possibility of mergers between Britain’s biggest mobile phone companies.
Last year, a £31bn deal between Virgin Media, the cable company, and O2’s mobile arm was waved through by merger authorities. The merged company has since been exploring further deals, speaking to broadband provider TalkTalk about a possible takeover.
The wave of consolidation comes as telecoms operators seek to slash costs by combining operations and bundle their broadband and mobile offerings for customers.
Last year, activist investor Cevian Capital emerged as a shareholder in Vodafone. The Swedish fund, backed by billionaire Carl Icahn, has pushed for mergers and acquisitions to boost Vodafone’s share price.
Questioned by reporters about M&A activities, Mr Read said: “A lot is happening behind the scenes on the priorities we set out. We have on towers very good engagement with a number of partners and we are advancing those discussions.
"On our fibre JV in Germany we are seeing very strong demand. In market consolidation… we are progressing across the four key markets we identified.”
Mr Read said the company continued to hunt for deals, including for its European towers business Vantage Towers, which floated in Frankfurt and is currently worth €14.5bn. Revenues at its towers arm increased to €325m.
The chief executive added that inflation was likely to put pressure on growth next year, while chief financial officer Margherita Della Valle estimated that energy costs were expected to be €300m higher than last year.
Mr Read is facing the prospect of a shareholder revolt at its upcoming annual general meeting.
Shareholder advisor Pirc has said Mr Read’s pay package is not acceptable, the Mail on Sunday reported.