CMA Demands Changes for Vodafone and Three UK to Merge
The Competition and Markets Authority has this morning revealed their provisional view on the outcome of their in-depth Phase 2 investigation into the proposed merger between mobile operators Three UK and Vodafone. This warns that it will only be able to approve the deal if the pair agree to key concessions that protect consumer prices and network competition.
Under the originally proposed deal (here), Vodafone would retain a 51% slice of the business and CK Hutchison (Three UK) are to hold 49%. The agreement was promoted as something that would be “great for customers, great for the country and great for competition,” while also resulting in a major £11bn investment to upgrade the UK’s 5G mobile (broadband) infrastructure and network coverage.
However, some regulators, MPs and consumer groups promptly sounded a note of caution, particularly given the concerns over any potentially negative impacts upon competition (at retail and wholesale / MVNO) and consumer prices, which may result from having fewer primary network operators (three instead of four).
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Some fears over job losses and national security (i.e. Three UK’s owner is often perceived as being closely tied to China) were also raised, although the government has since cleared the deal of any national security concerns (here) and job losses aren’t a matter for the relevant regulators. The CMA is thus solely focused on the competition side of things.
Recapping Phase 1
The CMA’s initial Phase 1 probe, which reported its findings in March 2024 (here), warned that the merger “could lead to mobile customers facing higher prices and reduced quality“. On top of that, the authority was also concerned that the deal “may make it difficult” for smaller mobile virtual network operators (MVNO) to negotiate good deals for their customers, by reducing the number of network operators capable of hosting them.
In addition, the CMA questioned some of the data and network commitments provided by the parties. For example, the authority said it “does not believe that there is detailed and verifiable evidence demonstrating that any customer benefits from any accelerated roll out of 5G SA would be timely, likely to materialise or sufficient to outweigh the Significant Lessening of Competition.”
Finally, and somewhat contrary to previous statements made by Vodafone and Three UK about being “sub-scale, unable to cover their cost of capital, and constrained in their ability to invest and compete effectively“, the CMA found that both operators were in fact “viable and competitive businesses and that they would continue to invest in their networks absent the Merger“. The CMA therefore believes that if the merger did not go ahead, both would in fact “continue to compete with each other, as well as with other mobile operators, in a broadly similar way as today.”
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In the past, regulators have often opposed such deals, but in recent years both the government and regulators 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. But crucially, that judgment was recently over-turned on appeal to the EU’s highest court (here) and a final conclusion has yet to be reached.
Provisional Outcome of Phase 2
Suffice to say that everybody with an interest in this sector has been waiting patiently, with bated breath, for the CMA to conclude their in-depth Phase 2 investigation of the deal, and today we finally got at least part of the answer (these are provisional findings).
Overall, the CMA broadly echoed their conclusions to Phase 1, which highlighted concerns about the lessening of competition and risk of consumers paying higher prices. But they also acknowledged that integrating the Vodafone and Three UK networks could “improve the quality of mobile networks and bring forward the deployment of next generation 5G networks and services“.
However, the regulator similarly still “considers that these claims are overstated, and that the merged firm would not necessarily have the incentive to follow through on its proposed investment programme after the merger“. In short, the CMA has provisionally concluded that the “merger would lead to a substantial lessening of competition in the UK” – in both retail and wholesale mobile markets.
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Stuart McIntosh, Chair of the Inquiry Group, said:
“We’ve taken a thorough, considered approach to investigating this merger, weighing up the investment the companies say they will make in enhancing network quality and boosting 5G connectivity against the significant costs to customers and rival virtual networks.
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.”
The outcome was perhaps expected, since you can’t shrink the number of primary network operators from 4 to 3 without raising difficult competition concerns, but the attention will now switch to consulting on these findings and “potential solutions” to its competition concerns.
Several potential solutions have today also been set out in the CMA’s remedies notice. These include legally binding investment commitments overseen by Ofcom, and measures to protect both retail customers and customers in the wholesale market. But the CMA said it would “retain the option to prohibit the merger should it conclude that other remedy options will not address its competition concerns effectively“.
The potential approach seems to be one of a “partial divestiture remedy“, requiring the divestiture of or access to certain mobile network assets and radio spectrum (from either Vodafone or Three) in the UK. The aim of this remedy would be to enhance the competitive capability of an existing MVNO (i.e. virtual operators like iD Mobile etc.).
Alternatively, the parties could provide sufficient assets to enable a new provider to enter the market as an MNO and compete across all parameters of competition including network quality (the CMA recognises this is very hard to achieve and thus “may not be effective” as a remedy). Such a remedy “would likely also require a national roaming agreement” and ongoing support from the Merged Entity at a minimum.
The bar being set by the CMA today is high, particularly in terms of expecting Three UK and Vodafone to make their network coverage commitments legally binding or to help facilitate a new primary mobile operator (MNO), but these are not all insurmountable obstacles. Likewise, it was already widely expected that the merged company might have to divest some of their spectrum ownership to rivals to avoid holding a dominant position.
Naturally, Vodafone and Three UK both “disagree with the CMA’s Provisional Findings“, specifically that their merger raises competition concerns and could lead to price rises for customers. But rather than just disagreeing, they’ll instead now need to find an effective way of placating the CMAs concerns. On that point the pair said they are “confident we can address their concerns” and both operators have also said they’re “willing” for their network coverage pledges “to be monitored independently and enforced by Ofcom.”
Margherita Della Valle, Vodafone’s CEO, said:
“Our merger is a catalyst for change. It’s time to take off the handbrake on the country’s connectivity and build the world-class infrastructure the country deserves. We are offering a self-funded plan to propel economic growth and address the UK’s digital divide.
Great network connectivity is a critical enabler of so many elements of our daily life and is central to the future prospects of so many sectors. Businesses large and small are dependent on it and it enables new industries – like AI – to thrive. It facilitates a step change in productivity and care across the public sector, and it lies at the heart of every nation’s future prosperity.”
Robert Finnegan, CEO of Three UK, said:
“The current UK 4 player mobile market is dysfunctional and lacks quality competition with 2 strong players and 2 weak players. This is reflected in the current state of the UK’s digital infrastructure that everyone agrees falls well short of what the country needs and deserves. We are determined to reassure the CMA in relation to their provisional concerns and work with them to secure the extensive benefits this merger brings for UK customers, businesses and wider society.”
The operators and other interested parties will now be given a chance to make representations on these Provisional Findings by no later than 4th October 2024. The deadline for a final outcome is currently 7th December 2024. At present we think the odds are fairly good that a solution can be found that will enable the merger to proceed, albeit not without some sacrifice.
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 and Linkedin.
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Typical UK being Anti Business. Deals like this is what we need for competition with BT/EE
The CMA are protecting British interests against Chinese and Australian mega telecoms.
This deal is ultimately about price hiking, I don’t think you have really understood.
Did you even read the article? Typical UK, needing to do better with funding for schooling..
@Terry Mcgrath
Australian?
Chinese I kinda get with CK Hutchinson Holdings, who own three, being reigstered and listed in Hong Kong, but I’m not sure where you got Australian from.
Satire is dead.
Australia is where Vodafone Australia and Three Australia merged into one company.
Its not competition. Its Vodafone getting rid of the competition (Three). When Three exit the UK market, what then? its Vodafone with a big chunk of the cake, plain and simple. Just like this whole ‘merger’ is a plain & simple back door into buying out Three. IMO as Three are going to exit the UK market anyway, then they should sell to an interested party. Instead of faffing about, (got to drag it on & get paid right?) the CMA should block it because of the round about way Voda is kicking out a competing network/ buying Three.
Fantastic news. Also great to see the 5G claims rubbished by the CMA – Having lived in a country with SA 5G, I can confirm it’s crap technology and changes nothing.
5G works well enough for me.
Yep, 5G NSA is pretty rubbish from Three in TElford unreliable keep disconnected time to time, often time out! I disabled 5G on my phone to leave 4G on. Useless waste of time 5G technolgy nothing is improved. Three put service status in my area since January 2024 every months nothing is fixed yet!
EE 5G is much better for my area.
So CMA basically wimped out. This BS statement “protect consumer prices and network competition.” – What Vodafone thinks is a good price rarely reflects what the public see as a good price!
After all, down to the nitty, gritty, VF want to wipe out a cheaper competitor (Three) who affects the overall market place with value tariffs. BT/EE and VF are dinosaurs in my view and in bed with each other when it comes to pricing, so that leaves them to the market with high prices and struggling O2 which has greedy VM at it’s heart and mostly over utilised network for large number of the country (didn’t say all).
Hopefully a very hard line is taken on any promises to divest assets to aid in the creation of a new MNO.
3 itself struggled hard as a new entrant and that was with an actual USP (i.e. they were going to exploit the potential of 3G networks to a degree no one else was doing, and with aggressive pricing too).
It hasn’t worked in the US, where Dish Network stepped in to buy spectrum that T-Mobile had to give up as part of the takeover of Sprint. Although they’ve met their coverage requirements, the network is still a basketcase & the financials are ruinous, much like any UK fixed line altnet. It’s assumed that someone will take it over, eg Amazon (who Dish use to host the cloud core, another ruinous misstep)
This is a green-ish light. The merger will be approved in December, the wording suggests they just want guarantees on price rises and investment, which OFCOM will regulate. The CMA’s findings appear to outline a fairly clear path towards a position that will both satisfy the CMA and be palatable to the merging parties.
You and I have read a completely different report.
No chance this will get through.
Remember Vodafone and Three had ‘no plans’ to re-introduce EU roaming fees in the UK. They did. Many EU carriers still do not charge for roaming in the UK – so the roaming agreements exist and would be reciprocated but Vodafone and Three decided to charge UK customers even though these agreements already exist. They cannot be trusted to keep prices competitive. EE have just launched a £22 unlimited 5G plan for their broadband customers, with no speed cap. That’s the discounted price by the way. Mark my words the new Vodafone/Three will put all of their SIM prices up. They want the average consumer to be paying at least £20/month for SIM only.
Very accurate about the EU roaming, all the networks said they had no plans. We all knew that was rubbish and I don’t think a single person expected this to be honoured, the funny thing is roaming isn’t the huge revenue generator it once was so I would say it’s pretty much a cost neutral network benefit therefore the decision to reintroduce it badged as a bonus is fair enough but totally laughable that we suspected the charge to roam across the piece would never hold in the long term.
In some respects it’s a bit like O2 Priority removing the free Greggs and telling customers it’s what they asked for.
@Denny betterman – Same report.
ISPreview mentions “only be able to approve the deal if the pair agree to key concessions that protect consumer prices and network competition.”
CMA is quite flexible despite its high bar of investigations.
I see a 50% to 75% chance; and never below 50%. CMA outlined potential remedies for Vodafone UK and Three UK to look into to get this merger past the blockers but if Vodafone UK and Three UK can make an agreement with CMA and Ofcom then there’s a 100% chance of this merger being approved. I would say to think outside of the box.
You should be grateful because CMA never done this with Microsoft vs ABK. Microsoft vs ABK done all of the hard work by selling off its licenses to other companies and working out deals.
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Also with third-party distributors, prices will always be unaffected:
Contracts:
• EE UK with 50 GB of 5G data (uncapped speeds), calls, and texts – £6.00 per month for 36 months (3 years).
• Three UK with 25 GB of 5G data, calls, and texts – £7.20 per month for 24 months (2 years) or 36 months (3 years).
• Three UK with 80 GB of 5G data only – £7.20 per month for 24 months (2 years).
• Three UK with 200 GB of 5G data only – £7.50 per month for 24 months (2 years).
• Three UK with 80 GB of 5G data, calls, and texts – £7.80 per month for 24 months (2 years) or 36 months (3 years).
• Three UK with 500 GB of 5G data only – £7.80 per month for 24 months (2 years).
• Three UK with 500 GB of 5G data, calls, and texts – £8.40 per month for 24 months (2 years) or 36 months (3 years).
• Three UK with unlimited 5G data only – £8.40 per month for 24 months (2 years).
• Three UK with unlimited 5G data, calls, and texts – £9.00 per month for 24 months (2 years) or 36 months (3 years).
• EE UK with 100 GB of 5G data (uncapped speeds), calls, and texts – £10.20 per month for 36 months (3 years).
• EE UK with unlimited 5G data (uncapped speeds), calls, and texts – £25.20 per month for 24 months (2 years).
Without contracts – you have to pay upfront:
• Three UK with unlimited 5G data only – £199.99 for 23 months (September 2024 to August 2026) which is £8.70 per month.
• EE UK with unlimited 5G data only (uncapped speeds) – £289.99 for 21 months (September 2024 to June 2026) which is £13.81 per month.
Consumers do not have to pay the consumer price. I know a lot of consumers in the United States who are paying for the business prices on Verizon, AT&T, etc.
I work very closely to this. I work for one of the two companies merging. Notice how there weren’t any structural remedies, all of the remedies Three and Vodafone can easily address. Notice the name drop of OFCOM, and look at past mergers that got here. The tone of this prelim is to get the best remedies of Voda/Three. This will go through.
Read the full price impact report. It is very modest. £3.33 a year. They just want some guarantees on this (& regulated post merger via OFCOM)
I work very closely to this. I work for one of the two companies merging. Notice how there weren’t any structural remedies, all of the remedies Three and Vodafone can easily address. Notice the name drop of OFCOM, and look at past mergers that got here. The tone of this prelim is to get the best remedies of Voda/Three. This will go through.
Read the full price impact report. It is very modest. £3.33 a year. They just want some guarantees on this (& regulated post merger via OFCOM)
What is the point of creating a new MNO, when Vodafone and Three could remain separate which is a lot easier? I’m not sure what the logic behind this is? In my view Three should get a new owner and offer something different from the other MNOs.
I agree
So much for competition!
Less choice for the consumer but as long as shareholders are ok
Its all about brown envelopes stuffed with cash to get your way in a decision, reducing competition so the same old dinosaurs can control the market (VF, EE,O2VM). Competition was already reduced when T-Mobile and Orange went under the much inflated pricing of EE. Now BT and Plus.net brands will disappear as MVNO lower price choices.
But people, you are not supposed to see this and consume the usual spin PR line of more investment and better for us all! yay!
Great news. The remedies should get waved through relatively easily and this should be all tied up by next year. Very happy Vodafone shareholder!
I hope this merger gets blocked.
Can’t afford to invest!
Two multinationals playing the UK cost of living crisis card want to merge and become a monopoly foodbank, that will cost like Waitrose not free.
O2 parent in Spain uses it as a cash cow and it’s managed to roll out 5G in almost 3000 places, EE nope, whilst Voda and Three were praying to the gods, lol just LOL.
Given the base station rent complexities of a asset transfer MNO alone with half of Cornerstone & half of MBNL being owned by ex Vodafone and Three new companies and listed companies at that outside of Vodafone U.K. & Three UK directly this has little chance of progressing, because both parties made that complexity in a close up run up to a merger & that’s before you take in Consumers & market share.
Dead as a dodo, thankfully. Three & Voda Australia merger was less complex but made a absolute great Three network complex & crap just like Vodafone AU already was, then Voda Hutchison had to get TPG Capital to bail them out their own mess.
VHA was 50/50 meant to be a number 2 behind Telstra (BT Aussie counterpart) and TPG walked away with 49.9% of VHA because Vodafone couldn’t run a bath.
Good riddance to this panicking fools idea at Vodafone of a (praying to the gods) merger, should have just bid on some 700MHz spectrum, Voidafone with 4/5G coverage to boot, or sought a roaming agreement in hindsight.
The CMA are serving you not Vodafone fantasy football team that appeases Hutchison parent bank financer who long term made no profit due to inept Three U.K. CEOs, now they want the quick buck pay day.
CMA (just like many other setups/bodies/etc) are not serving us.
Everywhere you look, shady shenanigans.
Where does this leave coverage for customers of Vodafone and Three? Both are in their respective sharing agreements: Vodafone with o2 under Cornerstone, and Three with EE under MBNL?
I’m sure a newly combined Vodafone and Three may either look to reduce site numbers, or may be forced to in the name of competition. If so, could it have a knock on effect with EE and o2?
I’ve never personally used Vodafone’s network but Theee / EE seem to be pretty good where I need them.
Oh dear oh dear, doh, does anyone really think, and can realistically explain away ofcoms pathetic attempts of pricing protection for consumers? Its a farce, one department, with no accountability for another deparment, actually expect the other department to actually enfoce consumer pricing protect given their ‘performance’ with such things. It”’ just one department passing off failure ontp another.
Again rather than proffit only ‘corporations’ why on earth are important things like nationa infrastructure just a national deliverable, that would get rid of all CxO costs along with shareholding costs and loss of taxation, just make it UK cost based, without profit parsism, particualalry as competion and switching costs are hardly working for consumers.
In Leeds anyway, both Voda and Three are terrible for indoor use, I hope this merger goes through and we ge more competition