UK has antitrust concerns around Vodafone and Three merger

The two parties now have five working days to respond to the CMA, otherwise the deal will be referred to a more in-depth Phase 2 investigation, which is likely.

The UK has found that a proposed $19bn merger between Vodafone and Three could lead to mobile customers facing higher prices and reduced quality.

Vodafone and Three, two of the four largest mobile network operators in the UK, first announced their plans to merge operations in the country in June last year. With 27m combined users, the new entity would be the biggest mobile operator in the market – ahead BT’s EE and Virgin Media’s O2.

After launching an initial 40-day investigation into the proposed merger in January, the Competition and Markets Authority (CMA) found that both Vodafone and Three provide “important alternatives” for mobile customers in the UK.

“Both have made significant investments in their networks in recent years – which includes the rollout of 5G. 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,” the CMA wrote in a statement today (22 March).

“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 ‘virtual’ mobile 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.

Julie Bon, who led the decision-making for the Phase 1 investigation, said that millions of people in the UK depend on effective competition in the mobile market to access the best deals for them.

“While 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,” Bon said today.

“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.”

The two parties now have five working days to respond with “meaningful solutions” to concerns raised by the CMA, otherwise the deal will be referred to a more in-depth Phase 2 investigation.

But according to James Robinson, a senior analyst at Assembly, the deal is “all but guaranteed” to warrant a Phase 2 investigation.

“A decision after only 56 days would also have been an incredible turnaround given we estimate an average review period of 249 days for similar four-to-three mergers seen elsewhere in Europe. The parties would have had to offer up something significant to secure approval at this stage, which would have been ambitious with such a short timeline to work with,” he explained.

“[However] it seems entirely plausible that a set of commitments, for example divesting spectrum and/or exiting network sharing agreements, could be agreed during the next phase that would be acceptable to the CMA and see the deal approved.”

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