The Competition and Markets Authority (CMA) has warned that the planned £15 billion Vodafone and Three UK merger would result in price increases for tens of millions of mobile customers or a reduced service, such as smaller data packages in their contracts.
The regulator’s in-depth investigation, led by an independent inquiry group, has provisionally found competition concerns over the proposed merger. In particular, it has raised 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.
The CMA has also provisionally found that the merger would negatively impact wholesale telecoms customers – Mobile Virtual Network Operators (MVNOs) such as Lyca Mobile, Sky Mobile and Lebara – which rely on the existing network operators to provide their own mobile services. It added that the merger would reduce the number of network operators from four to three, making it more difficult for MVNOs to secure competitive terms, restricting their ability to offer the best deals to retail customers.
Conversely, the CMA has also found that the merger could improve the quality of mobile networks and bring forward the deployment of next generation 5G networks and services, as claimed by Vodafone and Three. But the CMA said, currently, these claims are overstated, and that the merged firm would not necessarily have the incentive to follow through on its proposed investment programme after the merger.
As a result, the CMA has provisionally concluded that the merger would lead to a substantial lessening of competition in the UK – in both retail and wholesale mobile markets.
The CMA will now consult on its provisional findings. It will also consult on potential solutions to its competition concerns, including the options set out in its remedies notice. These include legally binding investment commitments overseen by the sector regulator, and measures to protect both retail customers and customers in the wholesale market. The CMA will retain the option to stop the merger should it conclude that other remedy options will not address its competition concerns effectively.
The CMA decided to refer the merger for a full investigation in April “on the basis that, on the information currently available to it, it is or may be the case that this merger may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom”.
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 response, Margherita Della Valle, Vodafone’s chief executive, said, “Our merger is a catalyst for change. It’s time to take off the handbrake on the country’s connectivity and build the world-class infrastructure the country deserves. We are offering a self-funded plan to propel economic growth and address the UK’s digital divide.
“Great network connectivity is a critical enabler of so many elements of our daily life and is central to the future prospects of so many sectors. Businesses large and small are dependent on it and it enables new industries – like AI – to thrive. It facilitates a step change in productivity and care across the public sector, and it lies at the heart of every nation’s future prosperity.”
Robert Finnegan, chief executive of Three UK, said, “The current UK four player mobile market is dysfunctional and lacks quality competition with two strong players and two weak players. This is reflected in the current state of the UK’s digital infrastructure that everyone agrees falls well short of what the country needs and deserves. We are determined to reassure the CMA in relation to their provisional concerns and work with them to secure the extensive benefits this merger brings for UK customers, businesses and wider society.”
The CMA is welcoming responses to its provisional findings by 4 October 2024 and its notice of possible remedies by 27 September 2024. These will be considered ahead of the CMA issuing its final report, which is due by 7 December 2024.