CMA orders further six-month probe into Vodafone and Three proposed marriage

The proposed merger of Vodafone  and Three deal could leave consumers and businesses worse off,  lead to higher prices for customers and affect investment in UK mobile networks says the Competition and Markets Authority 

The CMA has ruled the merger now requires further investigation with a six-month probe run by a panel of outside experts.

The decision was expected by Vodafone and Three who remain confident that the transaction will deliver significant benefits for competition, customers, and the country.

The CMA launched its initial 40-day Phase 1 investigation in January to identify whether the deal may lead to a ‘substantial lessening of competition’. The investigation focused on the potential impact on consumers and businesses in the UK. It will now go to Phase 2 where an independent panel of experts will look at the concerns flagged during the 4-day examination.

“The CMA is concerned that combining these two businesses will reduce rivalry”

Vodafone UK and Three UK have five working days to respond with meaningful solutions to the CMA; otherwise, the deal will be referred to a more in-depth Phase 1.

The CMA is concerned the deal could lead to mobile customers facing higher prices and reduced quality. It said:

“The CMA’s Phase 1 investigation found that Vodafone UK and Three UK provide important alternatives for mobile customers. Three UK is also generally the cheapest of the four mobile network operators. The CMA is concerned that combining these two businesses will reduce rivalry between mobile operators to win new customers.

“Competitive pressure can help to keep prices low, as well as provide an important incentive for network operators to improve their services, including by investing in network quality. The CMA is also concerned that the deal may make it difficult for smaller mobile ‘virtual’ network operators such as Sky Mobile, Lebara, and Lyca Mobile to negotiate good deals for their own customers, by reducing the number of mobile network operators capable of hosting these ‘virtual networks’.

“When announcing their deal last year, both Vodafone UK and Three UK claimed that combining both businesses would result in significant benefits to customers as well as speed up the deployment of new technologies.

“These types of claims can sometimes justify clearing a deal that would otherwise raise competition concerns. Vodafone UK and Three UK’s claims are based on a number of assumptions about how they will combine and invest in their networks post-merger. The CMA considers these assumptions need more detailed assessment, particularly given the CMA’s concerns that the merger may reduce mobile operators’ overall incentives to invest in their networks”.

“Our initial assessment of this deal has identified concerns which could lead to higher prices”

Julie Bon, Phase 1 decision-maker for this case at the CMA, said:

“Millions of people in the UK depend on effective competition in the mobile market in order to access the best deals for them. Whilst Vodafone and Three have made a number of claims about how their deal is good for competition and investment, the CMA has not seen sufficient evidence to date to back these claims.

“Our initial assessment of this deal has identified concerns which could lead to higher prices for customers and lower investment in UK mobile networks. These warrant an in-depth investigation unless Vodafone and Three can come forward with solutions.”

A joint statement from Vodafone and Three pointed out: “Vodafone UK and Three UK remain confident that the transaction will deliver significant benefits for competition, customers, and the country.

“The current market structure has resulted in the quality of mobile network services in the UK lagging significantly behind other European countries (see footnotes). Vodafone UK and Three UK are sub-scale, unable to cover their cost of capital, and constrained in their ability to invest and compete effectively against the two market leaders. As a result, customers and businesses are missing out on the benefits offered by enhanced digital connectivity.

“The merger will create a third Mobile Network Operator with scale, able, and incentivized to invest fully in a best-in-class network. Millions of customers across the UK will benefit from day one, thanks to a step-change in network quality, speed, and coverage. A combined network would also boost competition in the wholesale market, by offering greater choice to MVNOs, the fastest-growing segment of the UK’s mobile industry.

“We will review the potential concerns raised by the CMA and look forward to continuing to engage constructively with them as we set out the benefits of the merger for competition and for UK consumers and businesses”.

Current Vodafone UK CEO Ahmed Essam, said: “Having reached this important milestone, we look forward to working with the independent panel on the Phase 2 process. By merging our two companies, we will be able to invest £11 billion to help the UK realize its ambitions to be a world leader in next-generation 5G technology, and increase competition across the industry. “This transaction will create an operator with the scale required to take on BT and VMO2, give MVNOs greater choice in the wholesale market and is in the wider interests of customers, competition, and the country.”

Three UK CEO, Robert Finnegan, said: “The current market structure is holding the UK back, which is not good for customers or competition. By creating a third player with the necessary scale to invest, the combination of our two companies will deliver one of Europe’s most advanced networks and move the UK into the digital fast lane, benefiting customers from Day One.”