Three Thinker: Margherita Della Valle pushes ahead with planned £15bn merger with Three UK
Margherita Della Valle, who became Vodafone’s first female chief executive this year, is among the women who have risen to the top of the telecommunications industry. Telephone giant BT, also listed on the FTSE 100, will be led by a woman, Allison Kirkby, next year. The French group Orange has been headed by Christel Heydemann since 2022. So is this a big moment for women in the industry, marking the end of decades of male dominance?
“I think it’s a great thing.” “Until a year ago there were only men at the top,” says Italian-born Della Valle, 58. “It’s time for a breakthrough.” It had to happen sooner or later. Times are moving forward. “This will happen everywhere, not just in the telecommunications companies.”
Della Valle says there are still unconscious biases against women that make it harder for them to even break into the boardroom. But once they break through, she argues, being female can be a huge plus.
“Being a woman in business today is kind of a superpower because you bring a different voice,” she says. “It’s very difficult to get around the table. But once you’re there, your voice can really be heard because you have a different perspective.”
This is a far cry from the days when the most famous woman in Britain’s telecoms sector was actress Maureen Lipman, who starred in a BT advert.
Della Valle’s rise to CEO is the culmination of almost three decades at Vodafone. This comes after her predecessor Nick Read, who was responsible for a sharp fall in the share price, was ousted at the end of last year. Some observers wonder whether she can bring a fresh face to Vodafone as part of the previous top team.
After nine months in the job, she takes up this idea briefly and says: “Has anyone before me changed so much in such a short time?” “My first message as CEO was that everything here has to change.”
To most of us, telecommunications may seem dry and functional, but Della Valle really loves it. Excitement radiates from her face as she holds a piece of transatlantic telegraph cable that she keeps in her office. It was laid between the US and Cornwall by the Eastern Telegraph Company in the late 19th century.
She vividly recounts how Vodafone restored communications in earthquake-hit Turkey earlier this year by flying over equipment in three suitcases. She says: “We call it a network in a suitcase.” “With these three suitcases in an earthquake zone, we immediately create a network that is completely autonomous and connects to a satellite.”
She adds: “We have poor returns on capital and poor share prices, but what we have in our hands is a business that is so important to the functioning of the world.”
True, but the challenges it faces are enormous. When we meet at Vodafone headquarters in Paddington, London, she has just returned from a three-day strategy board meeting in Düsseldorf.
Vodafone is losing market share in Germany, its largest market. Sufficient returns are also not being achieved in the United Kingdom, Spain and Italy.
Della Valle attributes the sector’s underperformance in Europe to “fragmentation” – in other words, too many players in the market.
She believes that there must be mergers so that strengthened telecommunications companies can achieve a reasonable return and make the necessary investments in 5G, the new, faster and more responsive mobile technology.
With this in mind, she is reshaping the Vodafone empire and says: “It is very important that we operate in markets where we are able to earn the cost of capital.” “There are three markets in Europe where We have problems from this perspective: Great Britain, Spain and Italy.”
The Spanish business is currently being strategically assessed and potential buyers include British investment firm Zegona and US private equity group Apollo. In Italy, the breakup of Telecom Italia could be a catalyst for change, she says.
In Britain, she is pushing ahead with her predecessor’s planned £15 billion merger with Three UK, owned by Hong Kong investment giant CK Hutchison.
She hopes the deal will be finalized by the end of next year. Vodafone and Three are the third and fourth largest operators in the UK. First is EE, owned by BT, followed by Virgin Media O2, owned by Telefónica of Spain and Liberty Global of the US. A combination of Vodafone and Three would outperform both, so it’s no surprise that the Competition and Markets Authority (CMA) is taking a look.
Vodafone and Three UK say they will invest more than £11 billion over a decade to build an advanced 5G network. It is claimed that the deal will deliver economic benefits of up to £5 billion a year by 2030 by providing cutting-edge connectivity to businesses, households, schools and hospitals.
But the Unite union says it will lead to job losses, consumers will face higher bills of up to £300 a year and there is a risk to national security due to Hutchison’s involvement in Hong Kong.
The CMA blocked a bid by Three to buy O2 in 2016, but Della Valle insists this does not set a precedent. It also ignores potential national security issues due to Hutchison’s ties to China.
“The joint venture is controlled by Vodafone. “We appoint the managing director,” she says. Their argument is that the merged group will generate sufficient returns to meet the investments required for modernization.
“This will be positive for customers and good for competition,” she says, justifying the second claim with the fact that Vodafone and Three currently each have significantly smaller market shares than the big two.
This means, she argues, that they are unable to compete effectively as individual operators – but that a larger merged group would be a credible rival to EE and Virgin Media O2. She admits that it is a “counter-intuitive rationale.” It remains to be seen whether it will convince the CMA under its powerful boss Sarah Cardell.
On jobs, Della Valle again counter-intuitively admits that there will be cuts, but argues that this is a “bottom line positive” for the UK as a whole. She says: “There will be some job losses, but this will be much smaller than the opportunity for the wider economy driven by digitalisation. “It will create 8,000 to 12,000 indirect jobs.”
For Della Valle, whose credibility depends on the success of the deal, winning these arguments is crucial.
Another big crusade is customer service. When she took over as CEO, this was one of her three priorities, along with growth and simplifying the business. She says: “I firmly believe that as an industry we have made a mistake over the last few years.” We are very passionate about technology and innovation, but what customers really need is a simple and predictable service. You have to get the basics right.”
To this end, it has committed £150 million to improving customer service across Europe.
In January she is taking the entire board to Stoke on Trent, where the company has its main UK call center with 750 staff, so they can experience frontline service and sales for themselves. When it comes to growth, she sees a “big opportunity” in small and medium-sized companies. Many need to digitize but are too small to have their own IT departments and may turn to companies like Vodafone for help.
Shareholders are watching closely to see whether it will succeed where its predecessors failed. They are unlikely to tolerate another disappointment, so Della Valle’s future depends heavily on the deal with the Three and a revival of the share price, which has fallen 10 percent this year.
Some impressive shareholders, including French businessman Xavier Niel, Emirati telecoms giant E& and Liberty Global, are looking over her shoulder.
Della Valle acted decisively and quickly, but there is no honeymoon in today’s telecommunications industry.
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