Vodafone and Three Mobile have sped up talks about a new deal to combine their operations, creating the biggest player in the phone industry.
It is thought an agreement could be made by the end of the year.
“By combining our businesses, Vodafone UK and Three UK will 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 said in an update to shareholders.
Three is currently part of the CK Hutchison group of companies, which has mobile operations in 11 countries.
The Hong-Kong based umbrella company has been looking to sell Three for some time.
A deal would create a market-leading business with some 27 million customer connections – making it larger than Virgin Media O2 and EE, which is owned by BT Group.
The report said CK Hutchison has indicated during deal-related talks that it was seeking a valuation for Three UK of roughly £6bn, although it was unclear if that figure remained current.
Shares in Vodafone jumped after the report and were up 2 per cent at 103.16p by 0950 GMT on Monday, compared with a 0.8 per cent fall in the FTSE 100.
Vodafone Chief Executive Nick Read had said in February the company was pursuing mergers with rivals in multiple European markets, spurred on by more favourable signals from regulators who have realised the value of network investment during the Covid-19 pandemic.
One obstacle that may block the deal could emerge from Ofcom, the telecoms industry regulator, and the Competition and Markets Authority as any merger would be very likely to come under scrutiny.
Vodafone said: “As Ofcom has identified, some operators in the UK – Vodafone UK and Three UK – lack the necessary scale to earn their cost of capital.”
It added: “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.”
As companies prepare to phase out their 3G network – Vodafone will do so in 2023 – 5G is being credited with potentially transformational abilities.
A report from Vodafone published in 2020 argued that the rollout of 5G could bring more than £120bn in productivity gains to the UK economy between 2025 and 2030.