Virgin Media O2 CEO Raise Vodafone and Three UK Merger Concerns
The CEO of broadband and mobile giant Virgin Media and O2 (VMO2), Lutz Schüler, has – perhaps predictably – raised competition concerns over the proposed mobile merger between Vodafone and Three UK, not least because he believes the pair will end up controlling too much radio spectrum. Network sharing is another issue.
The merger (here), if approved, would see Vodafone retain 51% of the business and CK Hutchison (Three UK) hold 49%. Both mobile operators have naturally promoted it as something that would be “great for customers, great for the country and great for competition,” while also proposing a major £11bn investment to upgrade the UK’s 5G mobile (broadband) infrastructure and network coverage.
As part of this, the Competition and Markets Authority (CMA) has already launched a formal Phase 1 investigation into the proposed mega-merge (here), which will next month almost certainly be extended to a deeper Phase 2 investigation – as is fairly normal for deals of this size and complexity. A separate investigation is also underway to check if there are any national security concerns (here).
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The CEO of VMO2, Lutz Schüler, has today waded into this phase of events by highlighting that their main concerns relate to the impact on their existing network sharing agreement (Vodafone and O2 have a network sharing agreement, as do Three UK and EE / BT) and how much radio spectrum frequency the new mobile giant will hold.
Radio spectrum has a huge impact on network coverage and performance, which impacts competition, and Ofcom often has a headache trying to balance all of these competing interests when they release new bands. The fact that the merged company would thus hold almost 50% of all mobile spectrum and just under 60% of C-band frequencies (valuable for 5G) is not to be overlooked, but unpicking all of this will be a tricky problem for the CMA.
In addition, Ofcom has ruled that they won’t proceed with their planned auction of spectrum in the 26GHz and 40GHz bands until after the merger has been decided (here), which helps to highlight the significance of the deal.
Lutz Schüler said (Telegraph):
“We understand the industry logic [for the merger] and need to support economies of scale. But we could not support our customers if the deal goes ahead without an agreement on spectrum and network sharing.”
The reality here is that VMO2’s CEO is simply saying exactly what we’d expect him to, since his focus will be on the aspects of the deal that could negatively impact their business. But it’s also widely expected that the CMA will be able to find solutions to this, which seems very likely to result in some degree of spectrum divestment and an agreement on changes to network sharing.
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The bigger challenge for the merger will still be in convincing regulators that the UK market is better off with three mobile network operators, rather than four. Ofcom and the CMA have historically tended to dislike big mobile-only mergers due, in part, to concerns that reducing the number of primary mobile operators might result in higher prices for consumers and damage competition at the wholesale (MVNO) level.
On the issue of pricing. Three UK and its related MVNOs (e.g. Smarty, iD Mobile) have historically tended to position themselves more as low-cost brands, while Vodafone tends to be a bit more premium. Vodafone did try to balance this a bit via their own MVNO brand, VOXI, but Three and its partners often still work out cheaper. On the other hand, Vodafone and Three UK have already committed not to make merger-linked price hikes (here), although the CMA may seek something a bit more binding.
Nevertheless, in recent years both the government and regulators appear to have softened their stance, which is partly due to a 2020 ruling by the European Court of Justice (here) – this found that having only 3 operators still made for a competitive market. At the same time, both Ofcom and the Government seem to be signalling that they’re softer on the idea than they were before, although how soft will be a matter for the CMA.
The CMA has a tricky balancing act to perform with this one. In our view, the merger stands a better chance of being approved than rejected in the current climate, but it will come down to a question of concessions (i.e. what the parties can offer to help placate the concerns). The regulator’s final decision on the proposed merger between Three UK and Vodafone isn’t expected until September 2024.
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Mark is a professional technology writer, IT consultant and computer engineer from Dorset (England), he also founded ISPreview in 1999 and enjoys analysing the latest telecoms and broadband developments. Find me on X (Twitter), Mastodon, Facebook, BlueSky, Threads.net and Linkedin.
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Of course Slo2 is worried about this! they’re an awful company and they’re worried about an already better 2 networks, becoming a beast of a network
The network sharing agreements are very interesting point.
Will Vodafone and Three have to leave MBNL and Cornerstone due to having an advantage or will o2, Vodafone, Three and EE decide to share access to the MBNL and Cornerstone portfolio amoung eachother where they see fit, probably with a buy in price.
Spectrum wise, it would be nice to see 5mhz of 1800 go to 02 and 5mhz of 800 go to EE. Those tiny chunks were always going to end up useless without small cells in high traffic areas.
Slo2 in my area is about the same as Vodafone and Three. Only EE is better coverage and speed.
If Slo2 was to go, then a cartel would be on the cards.
Already against Voda + Three as Voda will simply up the tariffs. In my opinion and experience (albeit no bad specific scenarios that contributed to my view), Voda is no angel and has horrific customer service attitude and always been expensive and thinks its better than it really is.
the merger is a bad idea, consumers need proper competition otherwise we’ll end up with a fixedline type situation where one company dominates
It’s a terrible idea. Why would 3 even want to get involved with Vodafone as their network is awful and cannot provide even the basic of service. Why would 3 entertain the idea of being the lesser partner as they can outperform Vodafone anyway and move forward without them. Let Vodafone die and be consigned to the past with other failures like blockbuster.
It’s a terrible idea. Why would 3 even want to get involved with Vodafone as their network is awful and cannot provide even the basic of service. Why would 3 entertain the idea of being the lesser partner as they can outperform Vodafone anyway and move forward without them. Let Vodafone die and be consigned to the past with other failures like blockbuster.
Each to their own, but I find Vodafone more than adequate and Three is useless for me! Three at my address and where I live has rubbish one bar 5G, or band 28 4G that hardly works.
Vodafone also trumps Three in London.
This for me is exactly why the merger is good. Where i live in the West Midlands 3 is incredible for example at home I get over 1Gbps on 5G. Vodafone do not even have 5G in my area and you’re lucky to even get data as the network is so congested.
But then pop into Central London or Central Birmingham the story flips. These 2 networks will compliment each other perfectly, its almost like they have been building the networks ready for this merger.
Three are the worst company I’ve ever dealt with.
My 5g hub (what a saga) contract cancelled last November. They are still sending me bills even though the account is closed.
When you think about it surely it would make sense for all the networks to share eachothers masts
Clearly networks are more effective in some areas.
But if they all shared masts then all networks would have good cover.
That’s how they do it in Findland
Oh really? A company formed out of the merger of two other companies, one of which was already a merger of many others is complaining about competition from a new group formed by a suggested merger.
Pot calling kettle?
Spot on….
To be fair though, O2 and Virgin were two different areas, Fixed Line and Mobile.
3 and Vodafone are both mobile. I can see why there is some concern around spectrum, which is mainly what their CEO is talking about.
As a three customer I hope this goes ahead. It will save me the trouble of porting across to a better quality network (i.e. EE or Vodafone) and hopefully sort out things like roaming, which have never worked properly with three.