The UK’s competition authority has issued a warning that the proposed merger between mobile network operators Vodafone and Three could result in increased prices and diminished services. However, it is encouraging the companies to suggest measures to alleviate any potential negative impacts.
The Competition and Markets Authority (CMA) initiated its investigation into the merger in October of last year. In its most recent update, it indicated that “tens of millions” of mobile users might face higher costs for their packages or a decrease in services such as data allowances. Additionally, the CMA noted that the wholesale market, where virtual operators like Sky Mobile and Tesco Mobile purchase airtime from the main carriers—Vodafone, Three, O2, and EE—might encounter less favorable deals due to the reduction in competition from four providers to three.
The CMA’s preliminary conclusion points to a significant reduction in competition within both the retail and wholesale mobile markets in the UK as a result of the merger. Vodafone and Three announced their merger plans in June 2023, a strategic move perceived as a reaction to BT’s acquisition of EE in 2016 and the merger between Virgin Media and O2 in 2021.
Margherita Della Valle, CEO of Vodafone Group, remarked at the time that the merger would lead to the establishment of a sustainable and competitive third operator in the UK, supported by a clear £11 billion network investment plan aimed at promoting growth, employment, and innovation.
The CMA will continue its consultation process while allowing Vodafone and Three to offer legally binding commitments related to their network investment plans, under the supervision of telecom regulator Ofcom, to address competition concerns.
The CMA also noted that it could still block the merger if it determines that proposed remedies fail to sufficiently resolve its competition apprehensions. Together, the merged entity is expected to serve around 27 million mobile subscribers in the UK. The two companies have argued that the merger would facilitate the rollout of 5G infrastructure, enabling them to compete more effectively against larger telecom conglomerates like BT/EE and Virgin Media/O2.
While the CMA acknowledged the merger’s potential to enhance mobile network quality and expedite the deployment of next-generation 5G services, it cautioned that it believes the benefits claimed by Vodafone and Three may be overstated and that the merged company might not be sufficiently motivated to follow through on its investment plans.
Matthew Howett, CEO of telecommunications analyst Assembly Research, suggested that it is unrealistic to expect the CMA to approve such a significant merger without implementing some form of remedies to address competition concerns. He acknowledged the predictable worries regarding consumer pricing but also noted that there are ways to mitigate these issues, such as introducing social tariffs or contracts aimed at protecting the most vulnerable consumers from price hikes, even if only slightly.
Howett added that a legally binding commitment to the £11 billion investment in network infrastructure, monitored by Ofcom, would benefit not only consumers and network quality but also the new Labour government.