Vodafone and Three have been given the green light to create the UK’s largest mobile phone operator after agreeing to invest heavily in upgrading the merged group’s network across the country.

The Competition and Markets Authority (CMA) said the pair must commit to upgrading 5G coverage and offer short-term customer protections against price rises.

The £16.5bn merger of the UK’s third and fourth biggest operators respectively will create a network with more than 27 million subscribers.

The CMA indicated last month that it was likely to approve the deal, despite fierce opposition from rival BT and fears over the impact on customer bills and competition.

The CMA said the merged company would be subject to legally binding commitments that it spends £11bn on upgrading their combined network, and said the deal would boost competition in the long term. The merger is expected to formally complete in the first half of next year.

The chief executive of Vodafone, Margherita Della Valle, said the approval “releases the handbrake on the UK’s telecoms industry”.

Under the terms of the deal, Vodafone/Three will have to commit to retaining certain existing mobile tariffs and data plans for at least three years, including on their sub-brands.

The pair must also commit to pre-agreed prices and contract terms to ensure that mobile virtual network operators – third-party brands such as Sky Mobile, Lyca, Lebara and iD Mobile – can obtain competitive wholesale deals, the CMA said.

Vodafone and Three are two of the four main network operators in the UK, alongside BT/EE and Virgin Media O2.

The deal was first announced in 2023. In September, the CMA warned that millions of customers could face higher bills from the merger, and it demanded concessions from the two companies, including the legally binding commitments on investment.

Della Valle said: “Today’s decision creates a new force in the UK’s telecoms market and unlocks the investment needed to build the network infrastructure the country deserves.

“Consumers and businesses will enjoy wider coverage, faster speeds and better-quality connections across the UK, as we build the biggest and best network in our home market.”

Canning Fok, the deputy chair of Three owner CK Hutchison, said: “When Three and Vodafone are combined, CK Hutchison will fully support the merged business in implementing its network investment plan, the cornerstone of today’s approval by the CMA, transforming the UK’s digital infrastructure and ensuring customers across the country benefit from world-beating network quality.”

Vodafone will own 51% of the merged company, and is likely to buy out Hutchison’s 49% stake after three years.

Stuart McIntosh, chair of the CMA’s independent inquiry group that led the investigation, said: “It’s crucial this merger doesn’t harm competition, which is why we’ve spent time considering how it could impact the telecoms market.

“Having carefully considered the evidence, as well as the extensive feedback we have received, we believe the merger is likely to boost competition in the UK mobile sector and should be allowed to proceed – but only if Vodafone and Three agree to implement our proposed measures.

“Both Ofcom and the CMA would oversee the implementation of these legally binding commitments, which would help enhance the UK’s 5G capability whilst preserving effective competition in the sector.”