By Paul Sandle and Clare Jim
LONDON/HONG KONG (Reuters) -Vodafone and CK Hutchison unveiled the long-awaited 15 billion pound ($19 billion) merger of their British mobile operations on Wednesday, saying the creation of a new market leader would help drive competition and investment.
Expected since the two companies disclosed talks in October, the deal faces prolonged scrutiny by the anti-trust regulator into whether having a single operator with 27 million customers could lead to higher mobile prices.
Seeking to win over politicians, unions and the competition authorities, the two groups said they would invest 11 billion pounds to create "one of Europe's most advanced standalone 5G networks".
Vodafone (LON:VOD)'s new CEO Margherita Della Valle said the deal was a "game changer" in its home market, and that it was good news for customers, the country and competition.
"The UK will benefit from the creation of a sustainable, strongly competitive third operator with a clear 11 billion-pound network investment plan over 10 years driving growth, employment and innovation," she told reporters.
Vodafone will own 51% and Hutchison 49% of the combined group, which will be led by current Vodafone UK boss Ahmed Essam. The finance chief of Hutchison's Three UK, Darren Purkis, will take the same role in the new group.
The combined operator will overtake BT (LON:BT)'s EE and VM O2, jointly owned by Telefonica (BME:TEF) and Liberty Global (NASDAQ:LBTYA).
Vodafone, Britain's third-biggest mobile operator, will have an option to buy-out the Hong Kong-based conglomerate three years after completion, if it agrees.
PROLONGED SCRUTINY
The deal will face intense scrutiny from regulators who have previously opposed deals that reduce the number of networks in major markets from four to three. Hutchison's attempt to merge with Telefonica's O2 in Britain seven years ago was blocked.
Unite, one of Britain's biggest trade unions, said it would lead to higher mobile phone bills and job cuts, and questioned whether a company with close ties to China should have such a prominent place in UK telecoms infrastructure.
The companies said the transaction would need approval under a UK National Security and Investment Act, which gives the government powers to intervene in deals that could pose a risk.
They will present their plans to Britain's Competition and Markets Authority (CMA) in the coming weeks.
"We believe that this case stands on very strong grounds," Vodafone's Essam told reporters, adding that customers would be getting a much better network for the same price. "We're very confident on our case."
Hutchison's Three UK boss Robert Finnegan pointed out that the planned investment was substantially higher than rivals', and said while a rejection by the CMA would not lead to Hutchison exiting Britain, it would have to reduce investment.
But the deal will still face many hurdles.
A CMA spokesperson said that as Vodafone and Three are key players with millions of consumers and many businesses relying on their services, it was only right that they review "the impact this deal could have on competition".
Vodafone said customers of both companies would enjoy better network coverage within 12 months of the deal closing, expected to be before the end of 2024, subject to regulatory and shareholder approval.
The two groups said they would be able to save more than 700 million pounds a year by combining networks by the fifth year after completing the deal.
Shares in Vodafone, which fell to a 25-year low of 71 pence on Tuesday, rose 4% after the deal was announced but closed up just 0.6% higher.
Hutchison was advised by Moelis and HSBC (LON:HSBA), while Morgan Stanley (NYSE:MS) and Robey Warshaw advised Vodafone.
($1 = 0.7909 pounds)