Reemerging: Vodafone and Three open up tie-up talks once again

(Photo by Ralph Orlowski/Getty Images)

The third and fourth largest mobile network operators in the country Vodafone and Three have reignited merger talks as the British telecom wars continue to heat up.

The two companies floated the idea for a merger last year, but failed to reach a deal, with competition regulation in the UK presenting a significant hurdle for the companies.

Back in March Three UK chief Robert Finnegan signalled towards market consolidation after the mobile giant reported humble revenue growth, despite hitting its strongest contract boom since 2012.

Telecoms expert at Enders Analysis Karen Egan told City A.M. at the time that scale is crucial for mobile operators trying to make a return, and “‘sub-scalers”, like Vodafone and Three, are finding this increasingly difficult.

Commenting on the news of reignited talks, Egan highlighted the “interesting timing”, as well as the enhanced pressure being placed on Vodafone chief Nick Read to do the right kind of deals

Read has also banged this consolidation drum, suggesting that investors would find UK firms more attractive if they were more profitable when combined.

Vodafone has been under increasing strain to speed up its organisational overhaul after it was revealed earlier this year that a notorious activist investor Cevian had taken a stake in the firm.

Despite Vodafone’s recent rejection of Italy’s Iliad and private equity titan Apax Partners’ takeover approach,  it is understood that Cevian are keen for the UK firm to pursue consolidation in key markets.

Vodafone have been contacted for comment, whilst Three UK were unable to provide comment.

Egan added that a merger of Three and Vodafone was ore likely than a takeover by either side as Vodafone doesn’t have the cash to acquire Three.