UK Gives Three, Vodafone Five Days To Avoid In-Depth Merger Probe

The Competition and Markets Authority (CMA) has signaled it has major concerns about the proposed merger between mobile operators Vodafone UK and CK Hutchison’s Three UK.

On Friday the UK antitrust watchdog announced that it has given both operators just five working days to provide “meaningful solutions” to its concerns.

Failure to do so will result in the CMA triggering an in-depth Phase 2 antitrust investigation, which could potentially derail the downsizing plan of Vodafone’s chief executive officer Margherita Della Valle, who labels the merger as a key component of her “portfolio right-sizing” plan.

Downsizing, right-sizing?

As a reminder, Vodafone has undertaken a number of big strategic moves in the past year, that began in May 2023 when Vodafone embarked on a “new roadmap”, that began with the axing of 11,000 jobs.

Then in June 2023 Vodafone UK and the Chinese owner of Three UK (CK Hutchison) finally agreed the long touted merger of their UK mobile operations.

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

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

Another major change for Vodafone came last November, when it exited the Spanish market, after agreeing to sell Vodafone Spain to UK-based telecoms investment firm Zegona Communications for $5.3 billion.

And then in March 2024, Vodafone reached a “binding agreement to sell 100 percent of its Italian operations (aka Vodafone Italy) to Swisscom AG” for €8bn in cash.

Phase 1

But the UK antitrust regulator has been watching.

In January this year, the CMA had announced a Phase One investigation of Vodafone UK’s merger with Three UK.

And now it has concluded its phase one investigation, and said it has concerns that the merger, which combines 2 of the 4 mobile network operators in the UK, could lead to mobile customers facing higher prices and reduced quality.

The CMA’s Phase 1 investigation found that Vodafone UK and Three UK provide important alternatives for mobile customers. It noted that Three UK is generally the cheapest of the four mobile network operators, and it is concerned that combining these two businesses will reduce rivalry between mobile operators to win new customers.

It said 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 said it is also concerned that 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’.

Phase 2

The CMA is not convinced the claims from Vodafone UK and Three UK, that the merger “would result in significant benefits to customers as well as speed up the deployment of new technologies.”

The regulator said these types of claims can sometimes justify clearing a deal that would otherwise raise competition concerns, and the claims are based on a number of assumptions about how they will combine and invest in their networks post-merger.

“Millions of people in the UK depend on effective competition in the mobile market in order to access the best deals for them,” said Julie Bon, Phase 1 decisionmaker for this case at the CMA.

“Whilst 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,” said Bon.

“Our initial assessment of this deal has identified concerns which could lead to higher prices for customers and lower investment in UK mobile networks,” said Bon. “These warrant an in-depth investigation unless Vodafone and Three can come forward with solutions.

Both Vodafone UK and Three UK now have five working days to respond with meaningful solutions to the CMA, otherwise the deal will be referred to a more in-depth Phase 2 investigation.

Phase 2 investigations will allow an independent panel of experts to probe in more depth initial concerns identified at Phase 1.