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The regulator will come to a final decision on the merger in December this year
The UK Competition and Markets Authority (CMA) has released its provisional findings on the proposed merger between Vodafone and Three, once again raising concerns that the deal could lead to higher prices and reduced service quality for millions of UK mobile customers.
“We’ve carefully examined the potential effects of this merger. While it could improve network quality, the potential cost to customers and smaller providers is significant,” said the CMA in a statement. “We will now work to address these concerns while ensuring future network investments.”
Specifically, the investigation has raised three key issues:
Potential price increases: The CMA suggests that tens of millions of mobile users could face higher bills or receive reduced services, such as smaller data allowances, as a result of the merger. Those most affected are likely to be customers already struggling with affordability.
Impact on Mobile Virtual Network Operators (MVNOs): The merger may also hurt smaller providers like Sky Mobile and Lyca Mobile (both of whom were named specifically), who rely on Vodafone and Three’s networks. With fewer network operators, MVNOs could struggle to secure favourable terms, making it harder for them to offer competitive deals.
Uncertain benefits: While Vodafone and Three claim the merger will improve network quality and accelerate 5G deployment, the CMA claims that the two companies have “overstated” these benefits, while questioning whether the merged company would follow through on its investment promises.
“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.
“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,” he continued.
In response to these findings, the executive teams at Three and Vodafone once again argued that the merger would not mean higher prices for customers and would not negatively impact competition.
Three UK CEO Robert Finnegan said in a LinkedIn post that “the current UK 4 player mobile market is dysfunctional and lacks quality competition with 2 strong players and 2 weak players”.
Vodafone’s CEO of European markets, Ahmed Essam, meanwhile, said that the findings “underestimate the current realities of the UK market.”
Both said that they looked forward to addressing the CMA’s concerns in order to secure approval.
Overall, while these findings from the CMA are not positive for the merger, they were also very much expected, In fact, some analysts are suggesting that the CMA’s statement could have a silver lining, in that it may be willing to consider “behavioural remedies” in order to approve the deal.
“The CMA’s findings on the Vodafone UK / Three UK merger do signal a potential pathway, importantly through behavioural rather than any structural remedies, over and above the £11bn network investment commitment to be enforced by the regulator, said Paolo Pescatore, founder of PP Foresight.
“The CMA offers a potential path to approval through a range of remedies. Crucially, it appears willing to consider “behavioural remedies” such as enhanced network access for virtual providers or safeguards for retail customers,” agreed Kester Mann, director of consumer and connectivity at CCS Insight.
“This is significant as many had feared that more onerous “structural remedies” – such as selling assets or supporting a new entrant – would be required. 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,” he continued.
The CMA is seeking responses to its provisional findings by 4 October 2024 and to its proposed remedies by 27 September. A final decision is expected by 7 December.
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