Vodafone, Three merger faces further competition review

[Pelican Press 0]

Vodafone, Three merger faces further competition review

Less than nine months after first announcing a ****** venture agreement that would bring their 27 million *** customers under a new, single network provider, the merger of Vodafone and Three *** has hit a regulatory hurdle, after an initial investigation into the deal by the country’s Competition and Markets Authority (CMA) concluded it could lead to higher prices for customers and affect investment in *** mobile networks, with mobile customers facing higher prices and reduced quality.

The potential merger was first announced in June 2023, and saw the operators’ parents, Vodafone Group and CK Hutchison Group Telecom (CKHGT), enter into binding agreements to combine their *** telecoms assets, in which Vodafone would own 51% of the combined entity under the working title of MergeCo, and CKHGT would own 49%. The deal would combine two of the four *** mobile network operators and represent the biggest shake-up in the *** mobile market for over a decade, allowing, said Vodafone *** and Three ***, the ability to add a much-needed alternative and increased real competition in the *** comms market.

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is to assess the potential impact of a merger on competition. It cannot consider other potential effects that a merger might have, for example, on employment or access to personal data. Once underway, a Phase 1 merger investigation must be completed in 40 working days. If the CMA finds the merger could lead to a substantial lessening of competition, it can refer it for a more in-depth Phase 2 merger investigation lasting 24 weeks, led by an independent panel of experts.

It launched its initial Phase 1 investigation into the merger in January 2023, after it was notified by Vodafone *** and Three ***. The 40 working day review is designed to identify whether the deal may lead to a “substantial lessening of competition” – focusing on the potential impact on consumers and businesses in the ***.

The Phase 1 investigation has found that CMA is concerned that combining the two businesses will reduce rivalry between mobile operators to win new customers. It added that 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. That said, the CMA recognised that Vodafone *** and Three *** provide important alternatives for mobile customers, and both have made significant investments in their networks in recent years – which includes the roll-out of 5G. Three *** is also generally the cheapest of the four mobile network operators.

The CMA was also concerned 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”.

The assessment also observed that when announcing their deal in 2023, both Vodafone *** and Three *** claimed that combining both businesses would result in significant benefits to customers as well as expedite the deployment of new technologies.

The CMA believes these types of claims can sometimes justify clearing a deal that would otherwise raise competition concerns. In the case of Vodafone *** and Three ***, it said such claims were based on a number of assumptions about how the firms will combine and invest in their networks post-merger. The CMA considers these assumptions as needing more detailed assessment, and had particular concerns the merger may reduce mobile operators’ overall incentives to invest in their networks.

“Millions of people in the *** depend on effective competition in the mobile market in order to access the best deals for them,” said Julie Bon, Phase 1 decision-maker for

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. “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 *** mobile networks. These warrant an in-depth investigation unless Vodafone and Three can come forward with solutions.”

Both Vodafone *** and Three *** have five working days to respond with meaningful solutions to the CMA, otherwise the deal will be referred to a more in-depth Phase 2 investigation.

In their initial response to the CMA Phase 1 decision, Vodafone *** and Three *** said they expected that the CMA would refer their planned merger to an in-depth Phase 2 review as the next step in the process, in line with the timeframe for completion that they had already set out. The firms said they remained confident the transaction would deliver “significant benefits for competition, customers and the country”, and that they would review the potential concerns raised by the CMA, and looked forward to “continuing to engage constructively” with the CMA as they set out the benefits of the merger for competition, as well as *** consumers and businesses.

“Having reached this important milestone, we look forward to working with the independent panel on the Phase 2 process,” said Vodafone *** CEO Ahmed Essam. “By merging our two companies, we will be able to invest £11bn to help the *** realise 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/EE and ******* Media O2, give mobile virtual network operators greater choice in the wholesale market, and is in the wider interests of customers, competition and the country.”

Just days ago, after posting the company’s 2023 financial results, Three *** CEO Robert Finnegan warned that with the current market structure of four mobile network operators, where there are two scaled players that have the ability to invest but do not face enough competitive pressure to do so, and two players (Three *** and Vodafone) that lack the scale to be credible challengers, the *** will continue to lag behind on 5G.

Regarding the CMA decision, he said: “The current market structure is holding the *** 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 *** into the digital fast lane, benefiting customers from day one.”

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