Vodafone and Three merger gets the go ahead from CMA but with strings attached

The Competition and Markets Authority (CMA) has cleared Vodafone’s historic merger with Three.

The deal will be completed in the first half of next year and is conditional on both companies signing binding commitments to invest billions to roll out a combined 5G network across the UK and cap tariffs and offer preset contractual terms to MVNO’s for three  years.

In September, the Phase 2 investigation of the merger found the could lead to higher prices for customers and poorer terms for MVNO’s. The CMA says the investment commitment and protections forretail and wholesale customers resolve its competition concerns.

The legally binding commitments require a joint network pla which sets out the improvements Vodafone and Three will make to their combined network across the UK over the next eight years.

The plan would boost competition between the mobile network operators in the long term, benefiting millions of people. The plan would be overseen by both Ofcom and the CMA, The merged company must publish an annual report setting out its progress.The CMA will; montor and enforcing the protections on consumer tariffs and wholesale terms.

The £11 billion network investment will require no public funding and, as highlighted by the CMA, will “boost competition between the mobile network operators in the long term, benefiting millions of people who rely on mobile services.

Vodafone CEO Margherita 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. Today’s approval releases the handbrake on the UK’s telecoms industry, and the increased investment will power the UK to the forefront of European telecommunications.”

Canning Fok, Deputy Chairman of CK Hutchison and Chairman of CK Hutchison Group Telecom Holdings, said:

“We have been operating telecoms businesses in the UK for over three decades and Three UK for the past two. We have invested in the people and the infrastructure, helping to bring the benefits of mobile connectivity to UK businesses and consumers. 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.”

“It’s crucial this merger doesn’t harm competition”

Stuart McIntosh, chair of the independent inquiry group leading 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, 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”.

improvements

Kester Mann, Director, Consumer and Connectivity at CCS Insight  vsaid: “This mega-merger marks one of the most significant moments in the history of UK mobile, heralding the arrival of a new market leader with a combined 29 million customers.

 “The outcome – after months of intense regulatory scrutiny – is about as good as it could have got for Vodafone and Three. Not only did they secure approval, but the agreed remedies and commitments are less onerous than feared.

“The CMA’s decision to approve the merger is the right one and largely strikes a good balance between nurturing competition and encouraging investment. It should pave the way for more efficient investments to bring about much-needed improvements to mobile services in the UK.

“With approval secure, the hard work really begins. The merged company’s biggest task will be to combine two established mobile networks with a complex assortment of network suppliers. CEO Max Taylor will also face difficult decisions in areas such as brand, retail, jobs, and market positioning. Rivals should be ready to pounce if any stage of the integration goes awry.

“The outcome is a positive one for the broader European sector, which has been clamouring for greater leniency on mergers for years. It may give operators in other markets fresh confidence to strike new deals of their own.”

Matthew Howett, Founder & CEO, at Assembly Research commented:

“Today’s final report sets the wheels in motion for a transformation of the UK’s mobile market, and ultimately the experience for consumers. There is still a chance Sky may seek to challenge the decision, but a successful appeal to the CAT would be hard-fought, expensive and face a high bar. We expect positive implications overall, not only for investment in, and the quality of, networks (including standalone 5G), but also for the wholesale customers and consumers and businesses that rely on them.

“The remedies package and headline investment commitment mean that the CMA’s work in this case is not quite over – and for Ofcom it’s just getting started. While it will be incumbent on a combined Three/Vodafone to invest and implement the requisite customer protections,

“Ofcom will play a vital (and new) role with respect to oversight and enforcement. Importantly, the regulator seems emboldened to assume these responsibilities. Its monitoring will need to be carried out in an agile way as possible to ensure the merged entity is living up to expectations and to minimise any risk of circumvention or market distortions that some have warned about.”

Paolo Pescatore of PP Foresight said it would take “many years” before the full merits of the deal are realised

“Ahere’s a lot of tough decisions to come. Merging two networks is no easy feat. While there are past examples with BT/EE and VMO2 to draw upon, it’s not going to be smooth sailing.” Overall, it’s a big deal for both players, arguably even more so for Three given its business model would have been unsustainable in the long term.”

“Network leadership will make or break the success of the deal. How much of the so-called promises will be spent on actual networks, when 5G is already widely available. For now, EE still remains the benchmark when it comes to network leadership based upon recent developments and on fibre rollout through Openreach.”

“Rivals will have a window of opportunity to lure disgruntled customers during this painful integration process. Priorities will be implementing a successful strategy and choosing a brand that resonates with consumers and business. On this it is very hard to see the Vodafone brand disappearing from its home core UK market. Better price guarantees in the next few years will be a big pull for customers.”