UK merger of Vodafone and Three in competition watchdog's crosshairs

Union claims corporate greed behind alliance, firms claim it is about helping customers

The UK’s competition watchdog is today kicking off Phase 1 of its probe into proposed merger between Vodafone and Three’s UK businesses to determine any repercussions the tie-up could have for rivals or customers.

The two telcos first mooted their union in June, pledging to sink £11 billion into the local 5G infrastructure over the subsequent decade. Politicians have already debated the potential impact, and union Unite warned the coupling is more about corporate greed than anything else.

Vodafone and Three said they need two combine the UK businesses to create the scale to compete against incumbent BT and Virgin Media O2, the latter itself the result of a merger.

Phase 1 of Computer and Markets Authority's (CMA) investigation into the potential influence of the deal will run for 40 days, during which officials will seek to identify if it could lead to a "substantial lessening of competition," and if so, whether a Phase 2 probe should be launched.

Sarah Cardell, CEO at the CMA, said in a statement:

"This deal would bring together two of the major players in the UK telecommunications market, which is critical to millions of everyday customers, businesses and the wider economy. The CMA will assess how the tie-up between rival networks could impact competition before deciding next steps."

With their lobbying hat on today, Vodafone UK and Three UK pointed to research by Opensignal, which finds the UK has the "slowest data download speeds in the G7 and is ranked 39th out of 56 in terms of active 5G connections; that the UK market is dominated by two large players; and the merger equates to investment to resolve this network investment challenge."

Vodafone UK CEO Ahmed Essam said the company has formally submitted its Merger Notice to the CMA. "We look forward to continuing the constructive conversations now that the formal process has begun. We strongly believe that the proposed merger of Vodafone and Three will significantly enhance competition by creating a combined business with more resources to invest in infrastructure to better compete with the two larger converged players."

Robert Finnegan, CEO at Three UK, said in a statement: "By combining networks, Three UK and Vodafone UK will unlock £11 billion of investment that will help the UK close the 5G gap with leading European countries and realize its ambitions to be a front-runner in digital connectivity.

"Thanks to this transaction, 95 percent of the population and every school and hospital will be covered by standalone 5G by the end of the decade. Joining forces will also yield more immediate benefits.

"From Day One, our [7 million joint] customers will enjoy faster, more reliable coverage over more of the country – and without paying a penny extra. We are confident that this transaction will deliver significant benefits to our customers, the country and competition, and we look forward to working closely with the CMA as they review our notification."

The CMA has become an active agency of UK government since Brexit, stopping Facebook's buy of Giphy, and voicing concerns over numerous proposed acquisition including Adobe's buy of Figma and Nvidia's now cancelled purchase of Arm.

Unite the union opposes a merger of the telcos, pointing the potential for the combined force to up prices for consumers, boost their profit margins, and hand dividends to shareholders. ®

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