Vodafone, Three hustle to tie knot before regulators crash wedding

Price hikes and reduced competition in virtual network space raised as major concerns

Vodafone and Three UK have mere days to convince Britain's competition authorities that a merger won't harm consumers. Failure to do so will result in a deeper probe of the proposed corporate marriage.

The pair went public with the coupling in June, promising to sink £11 billion into 5G infrastructure over the next decade. Unions have already expressed concern over the deal, claiming it could force up prices for the combined 27 million customers of both companies, ultimately boosting profit margins for shareholders.

The Competition and Markets Authority (CMA) started to inspect the potential impact of the merger in January to ascertain if it could result in a lessening of competition, and today decided that reducing the total number of four mobile operators to three is a cause for concern.

"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 decision maker 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.

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

Three UK is considered to offer the "lowest prices" of the four local operators, the CMA said.

It is also worried the merger "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'."

Vodafone and Three UK now have five days to put forward "meaningful solutions" or the Phase 2 probe will commence.

Ahmed Essam, Vodafone UK CEO, said in a statement: "Having reached this important milestone, we look forward to working with the independent panel on the Phase 2 process. By merging our two companies, we will be able to invest £11 billion to help the UK realize its ambitions to be a world leader in next-generation 5G technology, and increase competition across the industry.

"This transaction will create an operator with the scale required to take on BTEE and VMO2, give MVNOs greater choice in the wholesale market and is in the wider interests of customers, competition and the country."

Three UK boss Robert Finnegan said: "The current market structure is holding the UK back, which is not good for customers or competition. By creating a third player with the necessary scale to invest, the combination of our two companies will deliver one of Europe's most advanced networks and move the UK into the digital fast lane, benefiting customers from Day One."

Kester Mann, director of consumer and connectivity at analyst CCS Insight, described the deal as being "poised on a regulatory knife-edge" but reckons if both parties "make further concessions – such as divesting assets like mobile spectrum – they should just about get it over the line.

"My view remains that the deal should be approved. It is better to have three strong providers than two that are dominant and two that are sub-scale. Blocking it could thwart the long-term development of the UK's telecom infrastructure." ®

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