Vodafone-Three Merger Raises Quality Concerns

The Competition and Markets Authority (CMA) is concerned about the proposed merger between UK telecoms companies Vodafone and Three, adding that the deal could lead to mobile customers facing higher prices and reduced quality.

The CMA revealed this in a press release last week, just after it concluded its initial Phase 1 investigation on the proposed merger. “Last year, both businesses announced a new joint venture agreement which would bring their 27 million customers under a new, single network provider,” says the CMA.

Vodafone UK and Three UK are 2 of the 4 major providers of mobile telecommunication services in the UK. The CMA launched its initial Phase 1 investigation in January after Vodafone and Three notified it of the merger in October last year.

The aim of the investigation was to determine if the deal would lead to a “substantial lessening of competition” with a focus on the potential impact on consumers and businesses in the UK. The CMA’s Phase 1 investigation found that Vodafone and Three provide important alternatives for mobile customers in the UK, and both have made major investments in their networks in recent years. Three UK is also the cheapest of the 4 mobile network operators.

The competition watchdog concluded that “combining these two businesses will reduce rivalry between mobile operators to win new customers” and could lead to a lack of “incentive for network operators to improve their services, including by investing in network quality”.

“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,” says Julie Bon, Phase 1 decisionmaker for the case at the CMA.

The press release added that “The CMA is also concerned that the deal 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.”

However, BBC reported that Vodafone’s UK CEO, Ahmed Essam, said the joint venture would enable both companies to create an operator with a scale large enough to compete with the current two biggest network providers in the UK. Virgin Media O2 has around 24 million mobile customers, while EE has 20 million users.

The CMA concluded that both companies have not provided sufficient proof to back their claim on how the merger will benefit UK customers, so it needs to conduct a more detailed assessment. The CMA’s investigation is based on the merger provisions of the Enterprise Act 2002.

Bon added that both Vodafone UK and Three UK have five working days from the day of the announcement to respond with meaningful solutions to the CMA. Otherwise, the deal will warrant a more in-depth Phase 2 investigation.