CMA Cites Higher Prices Post Vodafone, Three Merger, Demands Changes

The British competition regulator has provisionally found competition concerns over Vodafone’s planned merger with Three in the UK.

Following an in-depth Phase 2 investigation by the Competition and Markets Authority, the CMA concluded the “merger could lead to millions of customers having to pay more.”

It all began back in June 2023 when Vodafone UK and the Chinese owner of Three UK (CK Hutchison) had finally agreed the long touted merger of their respective UK mobile operations.

Vodafone, Three

The merger would combine the companies’ telecommunications operations under one single network provider, for a total of 27 million mobile customers, instantly making the combined entity the biggest mobile operator in the UK.

Vodafone UK would own 51 percent of combined entity, and the merger was been touted as allowing it to present an improved challenge to rival domestic players BT/EE and Virgin Media O2.

But the UK antitrust regulator was watching and had concerns.

In January 2024 the CMA began a Phase 1 investigation of the merger which concluded in March, and the regulator warned the merger could lead to mobile customers facing higher prices and reduced quality.

Then in April the CMA began an in-depth Phase 2 investigation, which has now reached a provisionally conclusion that the Vodafone Three 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.

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.

Overstated claims

The CMA did concede that the merger, by integrating the Vodafone and Three networks, 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.

However the CMA said it currently considers 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.

“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,” said Stuart McIntosh, chair of the inquiry group leading the investigation.

“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,” said McIntosh.

The CMA said it will consider responses to its provisional findings by 04 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.

Vodafone response

Silicon UK approached Vodafone for comment, but at the time of writing it had not responded.

However Vodafone’s CEO for European Markets, Ahmed Essam, told the Today programme, on BBC Radio 4, that he still believed the merger would make a better network for customers, and add to the competition in the market.

“We’ve made a significant commitment to an £11bn investment,” he said.

“We’re willing to make sure that this is legally binding, and we undertake a commitment to deploy this,” said Essam.

He also said the firm had already traded part of its radio spectrum with a competitor.

Analyst reaction

Meanwhile Kester Mann, analyst and director of Consumer and Connectivity at CCS Insight told Silicon UK that approving the merger would be the best outcome for the future of the UK mobile industry.

“At first glance, the CMA’s concerns make for uncomfortable reading for Vodafone and Three as they battle for approval for their crucial merger,” said Mann.

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“However, many of these had been outlined previously, notably the potential for higher prices and likely impact on the wholesale market,” said Mann. “The main knockback to the merging parties is that the CMA considers claims of superior network quality post integration to be “overstated”.

“The CMA offers a potential path to approval through a range of remedies,” said Mann. “Crucially, it appears willing to consider ‘behavioural remedies’ such as enhanced network access for virtual providers or safeguards for retail customers.”

“This is significant as many had feared that more onerous “structural remedies” – such as selling assets or supporting a new entrant – would be required,” said Mann. “In this sense, Vodafone and Three should be encouraged by the tone of the CMA’s report which appears more open to the merger than I was expecting.”

“The ball is now firmly back in the court of Vodafone and Three,” said Mann. “They need to quickly assess these proposals and make further suggestions ahead of a final deadline in early December. The next three months may prove to be the most pivotal in the history of the UK telecoms sector.”

“I retain my view that approving the merger would be the best outcome for the future of the UK mobile industry,” Mann concluded. “A combined Vodafone and Three can make more efficient investments and push BT and Virgin Media O2 to raise their game too, boosting the market’s long-term connectivity credentials.”

2025 completion?

Meanwhile Dario Betti, CEO of the Mobile Ecosystem Forum believes that the merger will happen eventually, but just not this year.

“The merger between Vodafone UK and Three UK will happen, but not in 2024,” said Betti. “What we saw on 12 September was not a halt by the Competition and Markets Authority (CMA), but a series of change requests which, while expected, will push the deal into next year.”

“Vodafone and Three UK argue that the merger would actually strengthen competition by creating a stronger third player, capable of challenging market leaders like BT’s EE and Virgin Media O2,” said Betti. “The CMA’s cautious stance is understandable. It faces a tough choice: balancing the need for lower prices with the necessity of increasing investment in the telecom industry.”

“The real debate is not whether your phone bill will rise in the future — it likely will, given Europe’s low prices and the increasing demand for more complex technologies,” said Betti. “Instead, the question is: who will you be paying for communication services? A mobile operator or an internet company?”

“This debate isn’t limited to the UK. On the same day, the Italian sale of Vodafone Italia to its competitor Fastweb (owned by Swisscom) was delayed for further analysis by the Italian Competition Authority,” said Betti. “However, the deal is expected to move forward by Spring 2025.”

“The Vodafone-Three merger in the UK is just the beginning of significant changes in the communications market,” Betti concluded. “Expect more mergers and heated debates as the number of mobile networks — and their names — continue to evolve. The telecommunications landscape, both in the UK and across Europe, is entering a period of substantial transformation.”