- The Competition and Markets Authority has raised concerns over pricing and impact on MVNOs
- The CMA sees merger benefits for 5G rollout, but wants commitments on spending
- Analysts largely agree that the CMA is offering a potential path to approval through a range of remedies
On the surface, it looked as though Vodafone UK’s merger with Three UK was in trouble after the U.K.’s Competition and Markets Authority (CMA) last week released some provisional findings that the merger raises competition concerns and could lead to price rises for customers.
The authority also has voiced concerns about the potential adverse impact on mobile virtual network operators (MVNO), which would have fewer networks to choose from following a merger. And while the CMA concedes that the integration of the two networks could speed the deployment of 5G, it currently considers that these claims are overstated, and that the “merged firm would not necessarily have the incentive to follow through on its proposed investment program after the merger.”
However, analysts noted that the CMA is offering the two operators a potential path to approval through a range of remedies.
Indeed, the summary of provisional findings was accompanied by a list of possible remedies, including potential “behavioral remedies,” such as better terms for virtual providers, more support for disadvantaged customers and the option for customers to “roll over” their existing contract terms for a predefined period, noted CCS Insight analyst Kester Mann.
“This is significant as I had feared that more onerous structural remedies – such as selling major assets or supporting a new entrant – could be required to get the deal over the line,” he said.
In his view, a stance similar to that adopted by the European Commission in Spain, where a joint venture between Orange and MasMovil was only approved following the sale of spectrum to Digi Spain, “would probably have extinguished the deal.”
“Vodafone and Three would have almost certainly pushed back on accepting proposals that would only serve to undermine the rationale of them coming together in the first place. In this sense, a major potential barrier has been removed,” Mann added.
Spending commitments
PP Foresight analyst Paolo Pescatore agreed, noting that the CMA’s findings “do signal a potential pathway, importantly through behavioral rather than any structural remedies over and above the £11 billion network investment commitment to be enforced by the regulator.”
Karen Egan, head of telecoms at Enders Analysis, told BBC News that the remedies the CMA is proposing are “reasonably palatable” for the companies.
“The fear was that they might ask for structural remedies … and that could well have been a big stumbling block for the companies,” she said.
“The ones they are looking at instead are to do with commitments on network spend and also reassurances on pricing, and I think that the companies will be pretty open to those,” Egan added. “The CMA seems to very keen on the companies providing legally binding assurances that they are going to spend £11 billion on their networks over the next ten years.”
As Mann also noted, the operators took an important step forward in July by agreeing to sell spectrum to Virgin Media O2 and extend the Beacon network sharing agreement. “This seems to have allayed some competition concerns in these areas, although the amount of spectrum and which frequencies hasn’t been revealed,” he said.
One thing is certain: Time is running out for Vodafone and Three to address the CMA’s concerns and convince it of the long-term benefits of the merger. Responses to the provisional findings are due by October 4 and to the notice of possible remedies by September 27. The CMA is due to make its final decision on December 7.
Mann added: “The ball is now firmly back in the court of Vodafone and Three. They need to quickly assess these proposals and make further suggestions ahead of a final deadline in early December. The next three months may prove to be the most pivotal in the history of the U.K. telecoms sector.”
Deal unlikely before 2025
Meanwhile, Vodafone and Three were quick to respond to the CMA’s provisional findings, noting in a joint statement that they will “continue to work with them to demonstrate the merged company will deliver in full on the committed network investment.”
They also robustly disagreed with the findings that prices will increase and that the merger would adversely affect the wholesale market.
“We are reviewing the notice of possible remedies and look forward to working constructively with the CMA on the different options proposed. We are confident we can address their concerns,” the operators stated.
Dario Betti, CEO of the Mobile Ecosystem Forum, opined that the merger will happen, but not in 2024, with the series of change requests from the CMA expected to “push the deal into next year.”
Betti also noted that the CMA’s decision reflects a broader question: “Should telecom services be treated as utility services like water, electricity, and gas, where government oversight limits prices but stifles innovation? Or should the industry operate as a free market, where businesses innovate, set prices, and consolidate freely? And finally is it mobile networks that matters or should we look more at the role of the Big Tech that are now running the services on top of the data networks instead?”
The real debate, he said, is “not whether your phone bill will rise in the future … Instead, the question is: Who will you be paying for communication services? A mobile operator or an internet company?”
Betti pointed out that this debate isn’t limited to the U.K. The planned sale of Vodafone Italia to its competitor Fastweb, owned by Swisscom, has also been delayed for further analysis by the Italian Competition Authority. However, the deal is expected to move forward by spring 2025, Betti said.
He concluded: “The Vodafone-Three merger in the U.K. is just the beginning of significant changes in the communications market. Expect more mergers and heated debates as the number of mobile networks – and their names – continue to evolve. The telecommunications landscape, both in the U.K. and across Europe, is entering a period of substantial transformation.”