The payment was the first dividend payment made by Hutchinson 3G, which trades as Three UK, to CK Hutchinson in the twenty years since it has been operating in the market.
The dividend relates to the proceeds of CK Hutchinson’s tower sale to Cellnex, which included 6,600 UK towers.
Back when the merger was announced, Three UK and Vodafone argued they were operating below the cost of capital and the sub-scale economics of their two businesses were unsustainable.
They set out to appease the UK regulators fears that pricing would be impacted negatively for consumers by promising joint investment in a more sustainable and financially healthy joint venture.
Unite, a UK union that has criticised the merger plans since day one, said “the siphoning of record dividends from Three while crying 'failing firm' to push through the harmful Vodafone merger is nothing short of cynical exploitation,” in a statement attributed to executive head of operations Sarah Carpenter.
Unite criticised the payment, which came before a 14% price hike in Three’s tariffs last year. With less competition, Unite claim the price rise could have been higher.
“The prospect the deal leads to higher prices will be a major concern for the Competition and Markets Authority,” Kester Mann, director, consumer and connectivity at analyst firm CCS Insight told Capacity in June. The CMA is the UK regulator responsible for approving mergers and acquisitions.
“Vodafone and Three may have shot themselves in the foot by recently hiking tariffs by up to 14.4%,” he predicted.
Three UK maintains that the merger is necessary to ease their financial woes. Spokespeople for the company told Capacity that CK Hutchinson has invested billions into Three UK and UK connectivity over 20 years and has yet to see a return on that investment.
Furthermore Three’s 5G rollout, which began in 2019, was funded by CK Hutchinson using the assumed proceeds of the Cellnex transaction.
It has invested £2.3bn in capex in the last three full financial years (2020-2022) generating negative cashflows of £696m over that period.
Three UK said it will continue to generate negative cashflows for FY23 and FY24 with no return on its initial investment in 5G.
Unite have also criticised the deal under national security grounds, views that have been echoed in UK parliament debates around the merger.
“Entrusting vital blue light contracts to a Chinese state-influenced company raises alarming national security concerns,” Carpenter reiterated.
When asked by Capacity about these accusations in June, Three UK and Ireland CEO Robert Finnegan said CK Hutchinson would be reducing its stake in a UK MNO by merging with Vodafone, compared to its 100% ownership of Three UK, and as such the national security concerns are unwarranted.
CK Hutchinson’s owner Li Ka-shing has been criticised for his connections to the Chinese state, and has previously come under fire for other dividend payments made from his UK investments.
While the CMA is still inviting views on the merger, the fact that Ka-shing and his family will pocket over $600 million from the payment will do Three UK no favours in the court of public opinion.
How much that matters will remain to be seen.
