Vodafone Group Plc and Three UK are battling to overcome a raft of regulatory and political hurdles threatening to derail efforts to create Britain’s largest mobile operator, people familiar with the matter said.

Discussions between Vodafone and Three’s owner CK Hutchison Holdings Ltd. have been delayed in recent weeks by considerations about the integration and impact of their proposed tie-up, the people said, asking not to be identified discussing confidential information.

Things have been further complicated by news that Vodafone’s Chief Executive Officer Nick Read will stand down at the end of the year, they added. High on the agenda has been the potential response of competition watchdogs to any move that would see a smaller rival taken out of the market, according to the people. 

Vodafone and CK Hutchison are keen to head off antitrust concerns that fewer network providers would mean less pressure to reduce prices, at a time when double-digit inflation is squeezing British consumers. They want to show any merger would boost rural 5G rollout in the UK, the people said.

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Representatives for CK Hutchison and Vodafone declined to comment. Vodafone and CK Hutchison confirmed they were in discussions about merging their UK businesses in October. Under proposed terms disclosed at the time, Vodafone would own 51 per cent of the new venture, with the rest held by Hong Kong-based CK Hutchison.

While CK Hutchison has operated Three in Britain for almost 20 years, the companies have also become sensitive to China’s increasing influence in Hong Kong and whether this could stir UK political intrigue in a deal, the people said.

In 2020, the UK banned the installation of 5G equipment from China’s Huawei Technologies Co. and last month blocked of a Chinese-owned firm’s takeover of a semiconductor wafer factory in Wales under new stronger takeover rules.

Vodafone and CK Hutchison are eager to pitch the fact that CK Hutchison has operated other important UK infrastructure, including ports and power networks, for years without issue as a way of assuaging any concerns among British policymakers, according to the people. 

More pressure

Pressure to find resolutions to these issues is only likely to grow following the departure of Read, with one influential Vodafone shareholder already signaling he wants to see the carrier streamline its operations.

On Monday, Telecom tycoon Xavier Niel said he was ready to advise the Vodafone board to sell off business and create a leaner operation. Niel’s investment vehicle Atlas Investissement revealed a 2.5 per cent stake in Vodafone in September.

During his time in charge, Read struggled to finalise deals that would have reduced the number of players in Vodafone’s key markets in the UK, Italy and Spain. He will exit the company after failing to halt a years-long slide in its share price.