Vodafone-Three UK’s deal raises competition, pricing concerns, says British regulator

The U.K.’s Competition and Markets Authority provisionally concluded that the merger of U.K. telecommunication businesses of Vodafone (NASDAQ:VOD) and CK Hutchison’s (OTCPK:CKHUY) (OTCPK:CKHUF) Three UK is likely to lead to a substantial lessening of competition in the U.K.

The CMA said the merger would lead to price increases for tens of millions of mobile customers, or see customers get a reduced service such as smaller data packages in their contracts. The agency added that there are concerns that higher bills or reduced services would significantly impact those customers least able to afford mobile services, and those who might have to pay more for improvements in network quality they do not value.

The British antitrust watchdog also provisionally found that the deal would negatively impact ‘wholesale’ telecoms customers – Mobile Virtual Network Operators (MVNOs) such as Lyca Mobile, Sky Mobile and Lebara – which rely on the existing four network operators to provide their own mobile services. The merger would decrease the number of network operators from four to three, making it more difficult for MVNOs to secure competitive terms, curbing their ability to offer the best deals to retail customers.

The CMA noted that the merger could improve the quality of mobile services and bring forward the deployment of next generation 5G networks and services, as claimed by Vodafone and Three UK.

However, the agency currently considers these claims are overstated, and that the merge company would not necessarily have the incentive to follow through on its proposed investment program following the deal.

Thus, the CMA provisionally concluded that the merger would lead to a substantial lessening of competition in the U.K. – in both the retail and wholesale mobile markets.

The CMA will now publicly consult on its findings and explore potential solutions to the concerns before reaching a final decision.

The potential solutions, set out by the agency, include legally binding investment commitments overseen by the sector regulator, and measures to protect retail and wholesale customers.

“We will now consider how Vodafone and Three might address our concerns about the likely impact of the merger on retail and wholesale customers while securing the potential longer-term benefits of the merger, including by guaranteeing future network investments,” said Stuart McIntosh, chair of the inquiry group leading the investigation.

The responses to its provisional findings would be open till Oct. 4, while the final decision is expected by Dec. 7.

The CMA noted that it will retain the option to prohibit the merger if it concludes that other remedy options will not address its competition concerns effectively.

In March, the agency announced that it was starting an in-depth probe, what it called a phase 2 investigation, into the merger. In June 2023, Vodafone (VOD) and CK Hutchison announced they were merging their U.K. telecommunication businesses, Vodafone UK and Three UK, to create the country’s largest mobile operator.