One of the biggest topics in the U.K. mobile market is the potential merger between Vodafone and Three. It was originally announced on June 14, 2023, and if all goes as planned, the Competition and Markets Authority (CMA) investigation will conclude by the end of this year. Three posted its first operating loss since 2010 in 2023 and has been making the case that four Mobile Network Operators (MNOs) is one too many for the UK. The companies have also cited increased competition from Mobile Virtual Network Operators (MVNOs), as well as Three’s lack of continuing 5G expansion, small customer base, and high churn. Vodafone’s chief network officer, Andrea Dona, has argued that without this merger there is an “emerging duopoly” in the UK when it comes to 5G.
Opensignal has already published an insight on the potential impact of the Vodafone and Three merger on the mobile network experience. In this analysis, Opensignal leverages insights from our Subscriber Analytics solutions to offer insights into the level of competitive churn Three is facing as well as which mobile providers former Three customers are migrating to.
Key Findings:
- Our data shows that Three has been struggling competitively. Three has a small subscriber base and high competitive losses relative to its market share.
- Over the last year, the composition of Three’s losses has changed, with more and more of its losses going to MVNOs on its own network. Nearly all of the losses to providers using its network are to iD Mobile, and SMARTY (Three’s budget sub-brand).
- SMARTY wins more from its parent brand than GiffGaff does from O2, its parent brand. While both sub-brands win more from their parent brand than other competitors, SMARTY is more reliant on taking customers from its parent brand.
The U.K. mobile market is very competitive, boasting a market penetration rate of nearly 130%. Among the four major retail brands, Three is the smallest, with 10.65 million active subscribers in Q1 2024, according to GSMA Intelligence. In comparison, Vodafone, the next smallest mobile network operator in the U.K., has 29.05 million subscribers.
Opensignal’s Loss Share metric offers valuable insights by measuring proportionally how much each operator loses to competitors each quarter. All included losses are competitive switches, meaning that losses are only included if the lost subscriber switches to another provider. Each competitor’s loss share is equal to its losses divided by all losses in the market over a period of time. However, looking purely at Loss Share can give a false impression of the market as providers with a higher market share have a larger base of customers to lose, which will typically amount to more losses. When loss share is indexed to a provider’s market share, a score of one indicates it loses subscribers at its exact fair share; e.g., a provider below one is doing better at preventing churn and a provider above one is doing worse.
In Q1 2024, Three lost 1.52x its fair share adjusted for market share, compared with 1.13x for Vodafone, 0.98x for O2 and 0.72x for EE. Three’s small size and relatively high losses have hurt the provider.
Loss Composition reveals which providers a given provider is losing subscribers to. Three's Loss Composition is roughly equally spread out between its three competitive MNOs. The biggest year to year change was the percentage of losses Three saw to MVNOs on its own network. Three’s Loss Composition rose by 10 percentage points year to year from 13% in Q2 2023 to 23% in Q2 2024 hinting that its subscribers are being cannibalized by MVNOs it hosts. The two MVNOs on Three’s own network driving the increase are iD Mobile and SMARTY.
iD Mobile, which primarily offers inexpensive contracts on a range of durations from one to 24 months, is owned by consumer tech retailer Currys and hosted on Three's network. Currys also owns Carphone Warehouse, a U.K. brand synonymous with consumer value, enabling it to use both its brand and retail footprint to advertise iD Mobile plans to value-conscious customers looking for an easy purchasing experience. From Q2 2023 to Q2 2024, Three’s loss composition to iD Mobile rose 7.8 percentage points from 6.2% to 14%. According to an analysis done by Analysys Mason, Three has long gone after low-cost consumer deals while Vodafone has had a more premium customer base. This implies that Three is competing more directly against MVNOs — which have been gaining market share — than Vodafone.
SMARTY, a budget sub-brand owned and operated by Three, offers more flexible and cheaper plans than its parent network. SMARTY’s appealing features for price-conscious customers include a refer-a-friend program, no annual price raises on rolling monthly plans, no credit checks, PayPal acceptance and EU roaming deals with 12GB fair use limits. While a switch from Three to SMARTY retains a customer within the company, it does so at a lower price point than even Three’s lowest price plans. This is particularly relevant in the light of the argument made by the two MNOs in Phase 2 of the CMA's investigation into the merger that Three’s “...subscriber base does not generate sufficient revenues to cover its costs, it continues to earn insufficient returns and is increasingly unable to sustainably fund the levels of investment [redacted].”
SMARTY’s closest comparable brand in the U.K. market is GiffGaff, the budget sub-brand owned and operated by O2 on its own network. GiffGaff primarily targets younger, digitally savvy audiences via a SIM-only offering and through community support.
Win Composition can be used to analyze which competitive providers a given provider is winning subscribers from. The provider’s total wins serve as the denominator, while wins from each respective competitor is the numerator. During this time period, SMARTY won 2.63 times fair share of its wins from Three, relative to Three’s market share. In contrast, GiffGaff won just 1.26 times its fair share from O2, relative to O2’s market share.
Three’s struggles are driven by a low subscriber base and high churn resulting from many factors including the halted expansion of its 5G network and pressure from both its own budget sub-brand and competitively from MVNOs such as iD Mobile that compete heavily on price and offer flexible contracts. If these issues are not addressed they could lead to an even more precarious financial situation for Three, making it even harder for Three to resume 5G expansion if the merger were not to happen for some reason. This in turn could lead to even more Three customer churn as other providers have more capital to invest in their networks.
Opensignal has the insights to help describe the state of competition between operators in a number of markets. If you are interested in learning more about our Subscriber Analytics capabilities, please contact us.
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