Vodafone, Three UK push back on UK competition watchdog’s merger concerns | Computer Weekly

After an initial investigation into the proposed merger of Vodafone and Three UK deal by the UK’s Competition and Markets Authority (CMA) concluded it could lead to higher prices for customers and affect investment in UK mobile networks, the operators have made their first responses to the CMA’s Notice of Possible Remedies (Remedies Notice) for the deal.

Vodafone and Three stated in their responses that the merger would be once-in-a-generation opportunity to transform UK digital infrastructure, with £11bn of network investment, and would be pro-growth, pro-customer, pro-investment and pro-competitive for the UK.

The merger – which would bring 27 million UK customers under a new, single network provider – 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 UK 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 UK mobile network operators and represent the biggest shake-up in the UK mobile market for over a decade, allowing “the ability to add a much-needed alternative and increased real competition in the UK comms market”, the operators said.

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

Under its remit, the CMA launched its initial Phase 1 investigation into the merger in January 2023 looking to identify whether the deal may lead to a “substantial lessening of competition” – focusing on the potential impact on consumers and businesses in the UK.

The investigation found that CMA was 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.

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”.

That said, the CMA recognised that Vodafone UK and Three UK 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 UK is also generally the cheapest of the four mobile network operators.

In its provisional judgment published on 13 September 2024, the CMA concluded that while the merger could improve the quality of mobile networks, it would likely 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.

It highlighted particular concerns that higher bills or reduced services would negatively affect the 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. In addition, it warned that incentives to follow through on the network investment once the deal was complete were “uncertain”.

The competition watchdog said that it would now consult on its provisional findings and explore potential solutions to its concerns before final decision by 7 December 2024.

In response to the notice of possible remedies, Vodafone and Three UK said their response to the Remedies Notice contained several additional commitments, which they believe “comprehensively” address the issues they have raised.

Specifically, they highlighted that they have already made two “substantive” commitments: the £11bn network investment commitment would “ensure UK customers enjoy one of Europe’s most advanced networks” and will level the playing field with the two larger players to drive competitiveness; and that the merger would extend the network quality benefits “well beyond” the merged company’s own customer base, by extending it to VMO2’s direct and MVNO customers. The agreement will deliver better quality, enhanced capacity and greater coverage to more than 50 million mobile customers across the country, they stated.

While Vodafone and Three UK stressed that they do not agree with the CMA’s provisional findings that prices will increase, they would continue to explore how they could answer its concerns.

To address both the retail and wholesale segments of the market, Vodafone and Three UK said additional commitments would include a commitment to retail customers to maintain tariffs at £10 or below for two years from the completion of the merger for value-focused customers on the Smarty brand, social tariffs on both the Smarty and VOXI 4 Now brands, and continue measures to protect registered vulnerable customers.

Meanwhile, for wholesale customers, Vodafone and Three UK said they will provide a reference offer that encourages MVNOs – the fastest growing part of the market – to access their additional network capacity to offer great deals to retail customers.

In a statement, the companies said: “The merger of Vodafone and Three is a catalyst for change. It will deliver a step-change in connectivity to UK customers and bring best-in-class 5G to every school and hospital in the country. Transforming the UK’s digital infrastructure is vitally important for businesses, the public sector, the UK’s technological advancement, and the government’s stated mission to kickstart economic growth.

“We will set out comprehensively why the merger is pro-growth, pro-customer, pro-investment and pro-competitive in our forthcoming response to the CMA’s Provisional Findings.”

Commenting on the response, Paolo Pescatore, founder and TMT analyst at PP Foresight, said: “[Vodafone and Three UK are taking an] unsurprising defiant position as they still disagree largely with the remedies, but encouragingly [have a] clear willingness to work closely on a number of areas such as a commitment to investment over the long period, a price freeze on selected tariffs under £10 for two years and collaborating on increasing competition in wholesale.

“It remains to be seen if the entity has done enough on pricing to ease the CMA’s concerns. This could be a sticking point that makes or break it. A path to approval exists which is key for all parties.”