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Three UK and Vodafone UK have five working days to convince regulators that their plan works
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The two operators say they remain confident a merger will deliver significant benefits for customers
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They have their work cut out for them, as the competition authority is concerned the deal could lead to higher prices and reduced quality for mobile consumers
As anticipated, the U.K. Competition and Markets Authority (CMA) on Friday announced its decision on the first phase of its probe into the proposed merger of Three UK and Vodafone UK, saying it believes the deal should be referred for a more in-depth, phase two investigation “unless the parties offer acceptable undertakings” to address the CMA’s concerns.
The two operators now have five working days, or until April 2, to convince the authority that their plan to create a new, single network provider with 27 million customers will not adversely impact competition in the mobile market.
In an initial response, Vodafone UK and Three UK said it was an expected next step in the process, and “in line with the timeframe for completion that we set out from the outset.” They “remain confident that the transaction will deliver significant benefits for competition, customers and the country.”
Despite this show of confidence, they will have their work cut out to persuade the CMA not to embark on a more intensive probe. After looking into the matter during its initial 40-day review, the authority said it is concerned that the deal “could lead to mobile customers facing higher prices and reduced quality.”
The CMA particularly highlighted the fact that Vodafone UK and Three UK provide alternative service offerings for mobile customers, and noted that Three UK “is also generally the cheapest of the four mobile network operators.”
Sense of inevitability
Julie Bon, phase one decision maker for the case at the CMA, said that while 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 U.K. mobile networks. These warrant an in-depth investigation unless Vodafone and Three can come forward with solutions,” she said.
The full summary of the decision can be found here.
According to analyst Paolo Pescatore, while technically the CMA has given Vodafone and Three five working days to respond with meaningful solutions to its concerns, “the reality is that the deal will be referred to a more in-depth phase 2 investigation lasting 24 weeks,” which is extendable by up to eight weeks in certain circumstances.
Indeed, Vodafone UK CEO Ahmed Essam appears to have accepted that an extended probe is something of an inevitability, noting that the operator looks forward to “working with the independent panel on the phase 2 process.”
Essam also reiterated why Vodafone believes a merger should be approved, citing plans to invest £11 billion in 5G and the creation of a stronger competitor with the scale to take on BT/EE and Virgin Media O2.
Three UK CEO Robert Finnegan added that 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,” Finnegan declared.