Three and Vodafone’s $19B deal hits the skids after UK rules that the deal will negatively impact customers and MVNOs
The U.K.’s antitrust regulator has delivered its provisional ruling in a longstanding battle to combine two of the country’s major telecommunication operators.
The Competition and Markets Authority (CMA) says that Three and Vodafone’s planned $19 billion merger — announced 15 months ago — could lead to higher prices for consumers, diminished service such as smaller data packages in contracts, and reduced investment in U.K. mobile networks.
The CMA also took aim at the market for mobile virtual network operators (MVNOs) — a set up aimed at increasing competition by enabling new carriers to set up and offer services without building all of their own costly communications infrastructure. The CMA also took aim at the market for mobile virtual network operators (MVNOs), a set up aimed at increasing competition by allowing new carriers to set up and offer services without having to build all of their own costly communications infrastructure. CMA stated that a merger could make it harder for MVNOs access wholesale deals and, therefore, increase the cost of services for customers.
Apart from the competition concerns, this merger could face at least one more roadblock. The U.K. had introduced the National Security and Investment Act in 2022 to cover such scenarios, and the government had previously used this law to block other deals between U.K. entities with Chinese companies. The U.K. had introduced the National Security and Investment Act back in 2022 to cover such scenarios, and the government had previously used this law to block other deals between U.K. entities and Chinese companies.
However, back in May the U.K. government greenlighted the Three / Vodafone merger on security grounds, with some provisions, leaving the remaining regulatory concerns firmly in the CMA’s domain.
Scrutiny
A deal of this magnitude was always going to attract regulatory overview, given that it would reduce the U.K.’s mobile network operator (MNO) count from four to three (the others being O2 and EE). The two companies had prepared for this eventuality, announcing at the time that they were allowing until the end of 2024 to finalize the transaction.
The CMA kicked off its initial “phase 1” probe in late January, progressing things to a full in-depth investigation in June having carried out a detailed market analysis and garnered industry feedback. These findings concluded that competition ultimately keeps prices low. By reducing the number of main players from four to three, this could lead to higher prices, with a combined Three / Vodafone being the largest U.K. provider with a share of nearly one-third. On top of that, the CMA found that separate companies are more inclined to invest in network coverage to provide a differentiated service from the competition — in other words, less rivalry might lead to less infrastructure investment.
“This case has pitted an investment argument against a competition argument,” Tom Smith, former CMA legal director and now competition lawyer at London law firm Geradin Partners, said in a statement to TechCrunch. The companies claim they need scale to invest but the removal of one of four network operators is expected to result in price increases. The CMA has today said that the parties have failed to prove their investment argument sufficiently to offset the harmful effects of the merger.”
It’s worth noting that in its findings today, the CMA acknowledges that the merger, if approved, could improve the quality of mobile networks, but it’s not clear of the incentives to follow through on the investment once the deal is complete.
Remedies
Today’s decision is provisional, and the regulator has now initiated a formal period with suggested remedies for the parties to address its concerns. The regulator has suggested structural remedies, such as divestiture of IP or business parts. This is unlikely, according to the CMA, because there are no obvious ways for a spin-off business to be run. The CMA did point to another possible solution here, including a “partial divestiture” involving specific mobile network assets and spectrum to enhance the “competitive capability of an existing MVNO or provide sufficient assets to enable a new provider to enter the market as an MNO.”
However, the CMA added that a prohibition of the merger would be the most “comprehensive” solution to addressing its concerns overall.
Moreover, the CMA makes some behavioral remedy suggestions, including specific commitments around their network investment plans, as well as time-limited protections for its retail customers (e.g. The CMA suggests that MVNOs should be protected during the initial phase of network integration to ensure that terms and prices are not negatively impacted. It could also include wholesale market remedies, such as network capacity ring fencing for MVNOs. Smith stated that the CMA had suggested a number of remedies including monitoring the investment promises and protecting consumers from future price increases. This type of behavioral remedy would be extremely rare in CMA mergers.” The companies also stated that they were reviewing possible remedies, and look forward to “working constructively with CMA” regarding the various options. Ofcom should monitor and enforce a PS11 billion investment in the network that was promised. This is reflected by the state of U.K.’s digital infrastructure, which everyone agrees falls far short of what this country needs and deserves. We are determined that the CMA is reassured in regards to their provisional fears and to work with them on securing the benefits of this merger for U.K. businesses, customers and wider society.
