Pre-tax profit at Three, the UK’s smallest mobile telecoms group, climbed more than a third last year ahead of a £10bn deal that will make it the largest in the market.

Three’s Hong Kong-based owner Hutchison Whampoa has agreed to acquire O2 in the UK from Telefónica, to create a mobile operator that will control about 40 per cent of the market by number of subscribers.

Accounts filed in Companies House show the extent to which Three has turned round its operations after suffering losses for almost decade after the group was launched in 2001.

Hutchison Whampoa ploughed £11bn into the business since its launch with little reward, but the investment made in acquiring licenses and building national infrastructure is finally showing a sustained return. The group made its first pre-tax profit in 2012.

Pre-tax profit rose to £282m in 2014, up from £166m the year before, reflecting in part increases in the prices the company charged consumers as it moved away from offering the lowest tariffs with the most amount of data.

People familiar with the company said that Three no longer aimed to add customers as quickly or offer as low prices given the lack of capacity on its mobile network.

Earnings before interest, tax, depreciation and amortisation increased 32 per cent to £527m in the 12 months to the end of 2014, although revenue was relatively flat at £2bn.

The group had more than 10.2m customers at the end of 2014, up from 9.8m in 2013.

Regulators analysing whether to pass the merger of Three and O2, which would reduce the number of mobile operators in the UK from four to three, will look at the profitability of the two groups.

Executives at Three said that the company needs to be strengthened through the merger in order to compete with rival BT once it acquires EE, another mobile group.

Three has the least amount of the spectrum used to connect phones of any of the four mobile operators, which is a key reason behind its decision to acquire O2.

The highest paid executive at the group received £1.7m in 2014, which is likely to be David Dyson, who will take over as the head of the combined group. O2 boss Ronan Dunne will leave the company following the merger.

Three has booked a tax credit of about £90m owing to investment losses in the past. The company chose not pay a dividend to its parent group.

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