Vodafone Group PLC (LSE:VOD) has agreed a deal to merge its UK business with Three UK into a business worth more than £7bn.
The FTSE 100 group said in a statement that will own 51% of the combined business, with Three's current owner CK Hutchison owning the other 49%.
Neither side will pay any cash consideration for the deal, with each contributing different amounts of debt on completion of the deal, which is expected by the end of next year.
The pair promised the combined company would invest £6bn in 5G in the first five years, rising to £11bn over 10 years, and expect the merger to result in more than £700mln of "efficiencies" and "synergies" by the fifth full year after completion.
Current Vodafone UK chief executive Ahmed Essam is intended to lead the combined operation, with Three's finance chief Darren Purkis taking the CFO role.
Margherita Della Valle, Vodafone's group chief executive, said the merger was "great for customers, great for the country and great for competition."
Competition is a big question mark, as the merger is of two of the UK's four largest mobile operators.
Vodafone said the combined company will lead to "levelling the competitive playing field, increasing competition to the UK's two leading converged operators and will also provide more choice in wholesale partners for the UK's already competitive MVNOs".
Its shares rose 3.4% to 74.86p after the announcement.
A total of £6bn of debt will be passed onto the merged company, with Vodafone UK contributing £4.3bn and Three UK £1.7bn.
The transaction is expected to have a "broadly neutral impact" on Vodafone's ratio of net debt to underlying earnings (EBITDAaL) but is expected to be accretive to adjusted free cash flow from the fourth full year onwards, it said.
Analyst Paolo Pescatore at PP Foresight said he expects the Hutchison share in the venture to reduce over time.
“Hutchison already has an extensive presence in the UK, but this should be seen as a gradual exit from the telco market. Having the current Vodafone UK CEO heading up the new operation is a testament to this belief. His considered approach will resonate with key stakeholders and improve any chance of getting the deal over the line,” he said.
But he said getting regulatory approval will be "hard".