Vodafone and Three UK Set Out Competition Commitments for Merger UPDATE
Mobile network operators Vodafone and Three UK (CK Hutchison) have today responded to the recently raised competition concerns over their proposed mega-merger by setting out a series of commitments, which they hope will satisfy the Competition and Markets Authority (CMA) enough to approve the deal.
Just to recap. The merger would see Vodafone retain a 51% slice of the business and CK Hutchison (Three UK) holding 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, the CMA’s investigation (here) found that reducing the number of primary mobile operators from 4 to 3 would result in a “Significant Lessening of Competition” (SLC) that gave rise to various concerns at the retail and wholesale level, such as from consumers being more at risk of higher prices and reduced quality. Virtual operators (MVNO) would similarly have fewer network (MNO) partners to choose from, which feeds into this.
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The competition regulator also questioned how much benefit an expanded 5G SA roll-out would really have and warned that, without a legally binding coverage pledge, the operators could still miss their targets and not face any consequences. Not to mention that the merged entity would be placed into a dominant position of spectrum ownership (i.e. giving them a significant advantage over rivals).
Speaking of which, some concerns were also raised about the difficulty of unpicking existing network sharing arrangements, such as between EE (BT) and Three UK. BT complained this could occur due to the merged entity gaining access to their Commercially Sensitive Information (CSI), relating to investment plans etc.
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.”
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.
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Finding a Remedy
The CMA then proceeded to set out a number of potential remedies, which might enable them to approve the deal. As part of the response to that, Vodafone and Three UK have today set out a series of commitments that they’d be willing to make (a few of these have been proposed before), which they hope may be enough to satisfy the competition concerns to secure approval – many of these echo the CMA’s earlier demands.
Joint Statement by Vodafone and Three UK
Vodafone and Three disagree with the CMA’s Provisional Findings. Our merger will be pro-growth, pro-customer, pro-investment and pro-competitive for the UK. It is a once-in-a-generation opportunity to transform UK digital infrastructure with £11 billion of network investment.
We continue to constructively engage with the CMA and remain confident that we can work with them to secure approval. Our response to the Remedies Notice contains several additional commitments, which we believe comprehensively address the issues they have raised.
In short, the mobile operators are proposing to make their network coverage commitments (e.g. 5G SA) legally binding – overseen and enforced by Ofcom. Furthermore, they’ve also tabled a proposal that would protect retail pricing for certain consumers (albeit only for a very limited period), divest some of their radio spectrum frequency to O2 (VMO2) and plan to provide a new reference offer to wholesale customers (virtual mobile operators / MVNO).
Proposed Commitments
➤ Our £11 billion network investment commitment will ensure UK customers enjoy one of Europe’s most advanced networks and it will level the playing field with the two larger players to drive competitiveness. We are happy for Ofcom to monitor and enforce this commitment.
➤ The merger will extend the network quality benefits well beyond the merged company’s own customer base, by extending it to VMO2’s direct and MVNO customers. This agreement will deliver better quality, enhanced capacity and greater coverage to over 50 million mobile customers across the country. On approval of the merger, Vodafone and Three have also agreed to sell spectrum to VMO2, helping to create a better alignment of spectrum holdings in the UK market.
➤ For retail customers: we will maintain tariffs at £10 or below for two years from the completion of the merger for value-focused customers on the SMARTY brand, social tariffs on both the SMARTY and VOXI 4 Now brands, and continue measures to protect registered vulnerable customers; and
➤ For wholesale customers: we will provide a reference offer that encourages MVNOs – the fastest growing part of the market – to access our additional network capacity to offer great deals to retail customers.
The last two commitments above are the newest editions, although the pledge to only protect certain retail prices does seem quite weak, particularly given how cheap some of the MVNO providers on Three UK’s network are across tariffs in the £20 to £10 range as well (e.g. unlimited data plans are often priced around £15-£16 per month via Smarty and iD Mobile, but how long will that continue post-merger? Vodafone’s equivalent plans are much more expensive).
Some of the proposed commitments, such as on retail pricing, appear similar-ish to what O2 and Three UK proposed in 2016 as part of their infamously failed (i.e. blocked by regulators) attempt to merge (here). But the regulatory and competition landscape is not the same today as it was then. Not to mention that the costly challenge of upgrading national networks to support 5G has also proven to be a significant pain point, which could be solved by such mergers.
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In the past, regulators 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 that judgment was recently over-turned on appeal to the EU’s highest court (here) and a final conclusion has yet to be reached.
Quite how the CMA will respond to this package of commitments is unclear, although we do think that Vodafone and Three UK could go further on the issue of retail pricing (the CMA may yet push for that). Ofcom will also be needed to judge whether the proposed divestment of spectrum to O2 is enough to placate concerns, as spectrum ownership is a very finely balanced area and EE won’t want to be put at a disadvantage.
The deadline for a final outcome is currently 7th December 2024, so there’s still time for negotiation to find a solution.
UPDATE 12pm
The full response is available here, but at 94 pages long you might need to take a day off just to get through it all.
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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There you go, black and white. Keep below £10 tariffs for a mere two years. That will flash by. Before you know it, ramping up the tariffs after to £20+.
You notice they don’t make mention of what they limit in those < £10 tariffs, like speed capping, paltry data allowance, voWiFi, voLTE, roaming etc. SO yes they may be there, but knee capped.
I do find it funny that I can go on Tesco mobile sim-only, and get a clubcard account, 12GB 12-month contract, free EU roaming included, 4G and 5G, for £9.50pm. Funny how they can achieve the basics for a sensible, dare I say it, good price.
Now I’m sure they’ve hobbled the fastest speeds, but I rarely download more than a YouTube video.
By comparison, I’ve just browsed the SIM only contract pages of the major mobile telcos. Oh jeez, it’s an embarrassing mess of what has strong hints of ‘premium marketing gamification’. The Vodafone SIM only page seems to be almost intentionally designed to be confusing, I’m half confused and I work in tech. For the same essentials listed in Tesco they seem to think £30pm is a starting point to include EU roaming (and most seem to want £40pm for the privilidge).
Remedies sound pretty reasonable. Expect this to get waved through to be honest, extra spectrum for VM02 will hopefully help drag them into the 21st century as well.
O2 doesn’t deploy the spectrum they already hold in most places. If they’re in the 20th century, it’s because of a lack of investment, not a lack of spectrum.
@Anon in my area O2 have deployed every spectrum band they hold and they still have issues at peak times. So you’re not correct in every case (although I have no doubt, in many!).
@CorrectHorseBattery
Quite often with O2 its not the spectrum thats the problem, theoretically they have plenty – they just don’t use it well for a start. Add to this the investment they historically made in their backhaul under full Telefonica ownership was atrocious and its the cause of quite a few of their speed/capacity issues today. The merger with Virgin Media was supposed to fix some of these issues, but the reality is that its a slow process and has had limited effect so far. Yes, O2 could do with some more spectrum to bring them in line with the other players & there are issues with spectrum at certian sites, as there is with all networks, but in O2s case its not the full picture.
@CorrectHorseBattery
5mhz on smalls cells suggests they don’t deploy anywhere near enough.
I’m yet to see 80mhz of n78 or any band 38 either.
These are in areas on their knees with only 1,8 20 deployed, firmly within O2 host.
They can deploy more, they should deploy more, they won’t.
The second and the fourth “remedy” are not measurable so in my view in their current form they mean nothing.
For the second, they should be committing to a certain percent of coverage (geographically, not by population) and this should be significantly higher than the current numbers. They should also commit to average bandwidth measured by a selected external entity.
They would need to define what they are investing £11bn in and how much more it is than the investment would me made by Vodafone and Three should the merger be rejected by the CMA.
For each commitment there should be a strict deadline defined (they only defined a deadline for the availability of the £10 packages somehow) and hefty penalties attached if the miss the deadlines.
Even with the above, I think it would be very bad for the consumers and I don’t even see the above happening.
In every word what they present is just nonsense. you can’t believe a word that people from Vodafone say because they are only focused on increasing prices without quality of services
This does feel like a fairly weak response and I’m not sure customers will benefit overall. I’m in two minds about this because more competition is generally better but spectrum is very limited and coverage is spotty for all providers, so I do think there’s an argument to be made for consolidating “backbone” providers and regulating MVNO pricing so competition is still good – but none of these proposals seem to go nearly far enough for that.
Weak and can only live in hope it will be blocked.
Only promise to protect SMARTY at £10, doesn’t cover the unlimited plan and they can whack up things like roaming if they want.
Also doesn’t mention TalkMobile so would suggest they’d close it, no more price comparison on that end then.
“Reference offer” to MVNOs hardly protects pricing, the most important thing to consumers.
Competition. What competition? There’ll be even less if this goes through
Absolutely agree. This merger has NOTHING that benefits the consumer, and EVERYTHING that benefits the shareholders.
The biggest price robber EE will remain on the market and after a short time VodaThree will join it. delayed in development by about 10 years Virgin O2 will be the only cheap but poor quality operator.
I do not like the Merger either
I am happy with my Smarty Unlimited Plan and Price,
I do not want it to go up in Price
I do not believe their Promises either
Absolutely rubbish. We know that the merger is going after SMARTY plans because like they said “MVNOs – the fastest growing part of the market” are eating into the ripoff plans so they want to stop the growth of MVNOs. And this merger will give them that power for sure.
Trading 3UK’s low-band 800Mhz holding to EE, would be sensible too. All 3 MNOs would then hold a 10Mhz block.
Yeah, I can’t see the competition watchdog letting Three keep its 5mhz. It would make EE the only network with significantly less low band. 15mhz vs 37mhz and 42mhz.
Why doesn’t the regulator mandate roaming to the “4 excuses for networks” because service has obviously fallen to such a level that it is now well below the minimum standard of acceptability. What would be great for customers is being able to get a signal when you need one and not a blank screen, the rest of it they can fight out amongst themselves.
Of course maybe we need a 5th 6th or 7th network, that would upset the apple cart.
When is this likely to complete. I thought Lebara current deal with Vodafone expires end of 2024. Any ideas if it is being renewed. Don’t want a Lyca situation where they switch host network without telling customers first… lol
So even more “smoke and mirrors” then? Honestly, is that it? I hope OFCOM are not that gullible (but know if it benefits them they’ll green-light it anyway)
I fail to see what competition we are talking about though. MVNO’s can still offer FAR FAR better deals than the major telco’s anyway (whilst using the very same networks) which shows us clear as day we are being utterly fleeced. All this merger will do is green light the big guys to inflate prices further (if not immediately) then over time.
With little improvement to services, pitiful investment and then some huge payouts to shareholders/execs I don’t expect this merger will benefit the consumer at all.
Ultimately We’ll end up with the choice of mobile networks akin to the big 6 energy companies. Can you imagine a price-cap for this too, set another over-inflated pricing with no choice of moving the way we are heading.