You wait ages for Vodafone to sort out its mergers and acquisitions strategy in order to improve its competitive position in some of its markets, only for two potential transactions and one rumored network sale to emerge in one week.

First, Vodafone UK confirmed longstanding speculation that it is in talks with UK rival Three UK on a possible combination of their operations. If allowed, a tie-up between the country's third- and fourth-biggest mobile operators would create the UK's biggest mobile operator, with about 27 million customers.

Figure 1: Reports suggest Vodafone Group is exploring a sale of its Spanish fixed network.
(Source: l_martinez/Alamy Stock Photo)

Moving over the English channel and onto the Iberian peninsula, Vodafone Portugal also announced its plan to buy the market's fourth convergent player Nowo from MásMóvil. Although such a combination would have only a small impact on the strong positions of rivals MEO and NOS in the fixed-line markets, it would strengthen Vodafone Portugal's second-placed ranking in the mobile market.

Reducing the pain in Spain

Speculation has emerged that Vodafone is planning a different approach in Spain, where it would face significant pressure should the proposed merger between Orange Spain and MásMóvil be approved. The merger, set to close in 2023, has come as a blow to Vodafone, which looks increasingly vulnerable in the Spanish market as the third-largest player.

According to Spanish newspaper Cinco Dias, Vodafone has now commissioned investment bank Evercore to find a buyer for its Spanish fixed-line network. By selling the network, the group seeks to reduce the pressure on its Spanish business and deflect criticism from investors, the report said. Neither Vodafone nor Evercore has so far commented on the reports.

In Spain, Vodafone has built up a somewhat patchwork fixed-line network, consisting of wholesale arrangements with Telefónica, fiber-to-the-home (FTTH)-sharing relationships with Orange Spain and MásMóvil and a hybrid fiber coax (HFC) network it inherited through the 2014 acquisition of ONO.

It has already been indicated that Vodafone Spain faces some difficult decisions over its HFC network – such as whether to upgrade the network or migrate its approximate 7.6 million HFC cable lines to fiber. In 2021, Spanish newspaper Expansión reported that regional operator Onivia and Telefónica were separately trying to convince Vodafone Spain to migrate to FTTH technology.

Should Vodafone sell its Spanish network, it would still need to be able to sell bundles of fixed and mobile services to compete with the converged offerings of rivals. However, the injection of a few billion euros into its coffers would certainly help with the costly construction of its 5G network. The operator has also no doubt been encouraged by evidence that investor appetite for fixed networks in Spain appears strong.

For example, an investor consortium comprising Crédit Agricole Assurances and Vauban Infrastructure Partners is to pay €1 billion for a 45% stake in Telefónica's new Bluevia Fibra venture, which is focusing on deployments in rural and hard-to-reach areas.

In addition, US investor KKR last year agreed to buy 49% of Red Eléctrica Infraestructuras de Telecomunicación SAU (Reintel), a dark fiber operator in Spain, from utility Red Eléctrica Corporación for €971 million (US$958 million). And Onivia, which was created in November 2019 when Macquarie Capital and Aberdeen Standard Investments acquired MásMóvil's urban FTTH network, signed another deal in 2021 to acquire a majority stake in MásMóvil's rural wholesale FTTH network.

Market shares

In terms of Vodafone's current fixed market position in Spain, July 2022 figures from the Comisión Nacional de los Mercados y la Competencia (National Commission on Markets and Competition/CNMC) show that Vodafone Spain is languishing in fourth place with an 18.27% share of the fixed broadband market.

Telefónica's Movistar was in first place with 35.4%, followed by Orange Spain with 23.54% and MásMóvil with 18.69%.

Want to know more? Sign up to get our dedicated newsletters direct to your inbox.

Vodafone has a somewhat stronger position in the mobile market, meanwhile, As of June 2022, it controlled 22.17% of the market, putting it only slightly behind Orange with 22.80% and ahead of MásMóvil with 20.61%. Movistar remained in the lead with a 27.96% market share. An Orange-MásMóvil merger would of course relegate Vodafone to a lower position.

Meanwhile, questions remain over Vodafone's strategy for Italy, the fourth market where its operations need some kind of transformative deal. Here, the group has already rejected overtures from Iliad, which wanted to buy Vodafone's Italian unit.

Related posts:

— Anne Morris, contributing editor, special to Light Reading