The UK’s competition regulator today dealt a blow to the proposed merger between telecoms giants Vodafone and Three after the watchdog said it had concerns over the deal.
The Competition and Markets Authority said it had provisionally concluded that the merger would lead to price increases for tens of millions of mobile customers, or see customers get a reduced service such as smaller data packages in their contracts.
The CMA said it has “particular concerns that higher bills or reduced services would negatively affect those customers least able to afford mobile services as well as those who might have to pay more for improvements in network quality they do not value.”
Stuart McIntosh, chair of the inquiry group leading the investigation, said: “We’ve taken a thorough, considered approach to investigating this merger, weighing up the investment the companies say they will make in enhancing network quality and boosting 5G connectivity against the significant costs to customers and rival virtual networks.
“We will now consider how Vodafone and Three might address our concerns about the likely impact of the merger on retail and wholesale customers while securing the potential longer-term benefits of the merger, including by guaranteeing future network investments.”
In a statement, Vodafone and Three said they disagreed with the CMA’s findings, adding the tie-up would ‘fix the country’s dysfunctional mobile market.”
The firms said: “Vodafone and Three disagree with a number of elements in today’s Provisional Findings.
“The CMA also recognises that the merger would improve network quality. We will continue to work with them to demonstrate the merged company will deliver in full on the committed network investment.”
Vodafone shares were largely unchanged in the opening minutes of trade in London.
A final decision over the merger is set for December this year.
Vodafone and Three unveiled a deal to merge their UK businesses in June last year, creating a £15bn behemoth that will be the country’s biggest mobile network operator.
Vodafone and Three’s parent company CK Hutchison Group Telecom Holdings will create a new entity, in which Vodafone will hold a 51% stake and CK Hutchison 49%.
The proposed merged business said it will invest £11bn over the next five years to create a new 5G network. But the the deal could still be scuppered by regulators, after a previous merger between Three and O2 was blocked by the European competition watchdog.
Three CEO Robert Finnegan today warned that the company would be forced to walk away from its £11bn investment commitment to the extent that the CMA demanded a divestiture as a condition of approving the deal.
He told UKTN: “If we had to divest any spectrum through a structural remedy, then we wouldn’t have the spectrum that we’re putting into that network commitment plan, so it would undermine it completely. The two are just incompatible in that regard.”
Vodafone CEO Margherita Della Valle cited a recent EU report into competitiveness, which recommended that remedies to mergers should focus on investment commitment “which matches exactly what the focus of this merger is.”
She told UKTN: “It’s really important to act now in Europe and in the UK to avoid further falling behind other European countries, because upgrading networks is no quick fix.
“It takes years to move up in the rankings and the world is moving on, particularly with technologies like AI. Everyone is acutely aware of the need to have good networks with good speeds and low latencies to benefit from technology advancements.”
