Sky Threatens Legal Challenge to Vodafone and Three UK Merger
Sky (Sky Mobile, Sky Broadband etc.) has today warned the Competition and Markets Authority (CMA) that they could launch a legal challenge (appeal) if the proposed merger between mobile network operators Vodafone and Three UK is allowed to proceed, unless significant changes are made to the proposed competition remedies.
The merger itself, which would see Vodafone retain a 51% slice of the business and CK Hutchison (Three UK) hold 49%, has repeatedly been promoted by the operators 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. This would be a big help to the government’s own 5G targets.
However, the CMA’s investigation (here) found that reducing the number of primary mobile operators from four to three would result in a “Significant Lessening of Competition” (SLC), giving rise to various concerns at the retail and wholesale level. Some examples include the risk of higher prices for consumers, reduced quality, dominance of spectrum ownership, tedious confidentiality issues with conflicting network sharing agreements (e.g. EE and Three UK) and less competition at the virtual operator (MVNO) level.
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The merger parties and the CMA then proceeded to negotiate a series of remedies to tackle those problems, which earlier this month resulted in the competition authority signalling its “provisional” approval for the merger (here). In return, the operators agreed to adopt a mix of retail price protections (lasting “at least” 3 years), as well as legal obligations on their network delivery plans and pre-agreed prices / contract terms to ensure that MVNO’s could obtain competitive wholesale deals.
Sky Warns of a Legal Challenge
The deal currently looks set to be given the final green light, but Sky today issued a supplementary response to the recently proposed remedies that warns the CMA against approving the merger unless further concessions are made. “The current weak remedies fall very short of this, and this exposes the CMA to serious legal risk,” said Sky, which, as one of the market’s largest virtual (MVNO) operators, will naturally carry some weight.
“Having reviewed the other responses from stakeholders, it is evident that many others have raised similar substantial concerns and if the CMA do not make several key improvements to the remedy, Sky, among possibly others, will be forced to consider appealing the decision,” said the disgruntled MVNO, before outlining a perhaps, in places, ambitious set of remedies that it says would avoid this turning into a protracted legal fight.
Sky’s Proposed Merger Remedies
Change 1: Extend the offer – so Sky and others can access it
An additional year (from three to four) will reduce the risk that the Merged Entity frustrates the process to try and exclude Sky – leaving us entirely unprotected. This extra year gives us and other MVNOs a buffer to negotiate and finalise any switch. The clock should be stopped if there is a dispute as this could be used as a further way to ‘run down’ the time and game the remedy. One extra year does not substantially increase the distortion risks, but it will make a big difference in making the protections available to the biggest MVNOs like Sky.
On a practical level, there also needs to be additional time to implement the switch (at least one year).
Change 2: Lower Unlimited pricing
The current Unlimited price is far too high to allow us to compete with other comparable offers in the market. Once you add in VAT and direct costs, just to break even – at a very minimum Sky would need to price this at £[redacted]/month. Against prices like H3G’s Smarty (at £16/month) this is too high to compete in the market (even assuming retail price increases in the market following the merger).
This immediately makes MVNOs uncompetitive with the Parties – undermining our retail position. As Sky has repeatedly told the CMA, consumers are increasingly moving to Unlimited deals. If MVNOs cannot offer these at competitive prices, they will be increasingly marginalised. To enable MVNOs to compete on a level playing field, the wholesale Unlimited price would need to be reduced – which would enable us to offer deals in line with equivalent brands like Smarty.
It also remains unclear to us how any Future Pricing Mechanism (FPM) will impact the unlimited price, as well as the standard prices. The easiest, simplest and fairest way would be to base the FPM on costs.
Change 3: Competitive standard pricing and no speed tiers
We also fundamentally disagree with the Parties’ newly proposed two-tier price – with a [redacted] premium for speeds above 150Mbps. There is no justification for any premium given there are no additional costs associated with delivering this speed – [redacted]. This is simply another way to ensure that MVNOs are boxed into lower speed segments of the market, not in direct competition.
Change 4: Option to extend (5+5 years)
While not all MVNOs may want or need a longer term, larger MVNOs such as Sky, will need the right to extend the offer for a further 5 years. [redacted].
If, contrary to what we expect, there is strong competition in the wholesale market after five years then Sky (and other MVNOs) may not choose to exercise the additional five-year extension. But that is enormous risk to take, particularly given that the Parties have already signalled that they will not allow MVNOs to roll over their existing terms. We strongly urge that this right to extend be explicitly included in the offer now.
Sadly, a lot of the details in Sky’s submission have been redacted, but it’s enough to get the gist of what they’re trying to say and there are some fair points (e.g. Change 1). On the flip side, O2 (Virgin Media) has also published its own supplementary response, which seems to indirectly criticise operators like Sky for “seeking windfall benefits from the merger clearance process“, which they say go “well beyond preserving effective competition in the wholesale market.”
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The situation is particularly awkward because Sky Mobile’s service is based off a Mobile Virtual Network Operator (MVNO) agreement with O2.
Extract from VMO2’s Response
“While MVNOs are valuable wholesale customers for mobile operators, they do not invest in building, maintaining and upgrading the network and are insulated from the risks associated with such investments. The current wholesale agreements in the market strike a careful balance between enabling MVNOs to compete and earn a reasonable return, while at the same time ensuring that mobile network operators continue to have an incentive to make multi-billion pound network investments.”
Finally, O2 suggested, in a dig that seemed to echo Sky’s proposal under ‘Change 2’ (unlimited tariffs), that “some market participants appear to be suggesting that MVNOs should not bear the risks associated with the unlimited tariffs which they place on the market.”
Whatever the merits, or not, of Sky’s concerns, the CMA will need to take the issues they raise onboard before reaching a final decision, which is due by 7th December 2024.
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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I believe this falls under the definition of ‘womp, womp’.
If you aren’t competitive and a subsequent merger only sets to highlight this, then that says a lot about you already overcharging your customer base.
Suck it up. I’m sure they’re not so considerate (or vocal), when it comes to overcharging TV customers.
Couldn’t agree more, cry me a river Sky with your monopoly of sport over the last 30 odd years and fleecing people for mediocre broadband.
Sky aren’t even an operator but a poor virtual one using o2’s poor network.
Sky Mobile is a virtual network running on O2’s network. Sky is complaining because the wholesale prices are likely to increase, making them (and every virtual network) more expensive and less able to compete on pricing. They even point out that they can’t compete with MVNOs like Smarty with the prices O2 charges them.
Three and Vodafone are the two cheaper options for wholesale customers. Without a cheap option, prices can only go up… so while I don’t really care about Sky, I wouldn’t mind if they fought the merger.
This country with this leftist government is going in the wrong direction. allowing these two companies to merge is some kind of misunderstanding and showing that once again no one cares about the customer in this country.
Oh, was the merger unlikely under the previous government, then?
Lost me at ‘leftist government’ and emphasised it by complaining about the government ignoring the people and being pro-corporate while apparently being leftist. The government can call the merger in but we have the CMA for a reason and should allow them to do their work.
Yep, you have that right.
I don’t want for it to be approved, but his merger was announced in 2023 and no one in that “rightist” government seemed to be against it. Something to keep when speaking of “lefts” and “rights”.
Nothing to do with governments of any flavour (unless they directly intervene). It is up to the Competition & Markets Authority which operates independently within set guidelines.
Trust sky get involved they have enough money robbing the public keep your nose out and concentrate on the cr** U have already I’m with three I think it’s a great idea due to the billions of investment
How about these companies worry about upgrading and improving their infrastructure and stop worrying about what others are doing
Sky are the masters of ripping people off anyway
This begs the (policy) question of: what’s the benifit of MVNOs to the consumer and why should they exist? The Sky reply just sounds like a disgruntled re-seller. MVNOs are just that – resellers. They don’t make any investments in tht network buildouts nor technology. So _everything being impermanent_, one who does not own the network they are reselling doesn’t have a perpetual right to be a reseller on that network. Said more directly: he who has the gold makes the rules
MVNOs exist because MNOs need them to better utilise their networks and provide income the MNOs won’t otherwise get. Also MVNOs are not resellers, they have their own tariffs, prices, customer support and billing.
I can assure you that other networks are waiting to cannibalise on the competition’s downfall, whether that competition includes Sky or other MVNOs. If they struggle, other networks will steal their customer base without hesitation by undercutting them and taking advantage of the technical challenges that will impact VF and Three customers.
To be honest, I kind of feel sorry for Sky. They’re an independent MVNO without any part ownership by the parent network. Smarty, Talkmobile and others don’t need to worry about the merger – it’s only the independents who have concerns.
I’m hoping it gets knocked back
1 Sky’s SIMO pricing is not competitive
2 Maybe they should use Vodafone/ 3 as there carrier
Be a bad thing if the merger does go ahead, less competition, we already have it for many people with broadband networks, where they have the choice of one. Openreach.
Need more competition, not less, we lost one when Orange and T-Mobile merged and then another large company took that over.
I am not a fan of Sky, but I hope they do take legal action and win. Too many laerge companies with too much control in this country, getting like the U.S of A companies control government
If that happens, I hope the CMA, Vodafone and Three counter sue Sky for wasting everybody’s time with a daft, silly and unneeded legal actions.
Sky overcharges the UK public so I have no sympathy for them regarding the merger.
Follow the money, this merger is a stain on the CMA. If Sky proceeds with legal action this could get very spicy for certain individuals.
No mention of ID Mobile or Talk Mobile £15 unlimited pricing.
Exactly. Sky’s unlimited data plan is £40 a month according to Uswitch. They may have told the CMA that “customers are increasingly moving to unlimited deals” but they themselves aren’t at all competative in the market. It does seem they want the CMA to sort out their shortsighted business model in this segment for them. They have a “long term” agreement with o2 and are a full MVNO, so if the merger goes through they are probably not affected in terms of what they pay for a good while. Though I’m not sure how long they have left on the long term agreement. My guess would be its just a bit longer than the 3 years Voda/3 would have to watch what they are charging. Sky are just concerned other MVNOs may be able to offer even better deals.
Even if the merger doesn’t go through they aren’t competing well in the unlimited data space. It makes me think, if they are serious about unlimited data, its the terms they agreed with O2 or something else thats the issue, not the merger.
Compare the prices of other MVNOs not owned by networks on U Switch:
ASDA mobile (Vodafone) – £15.99 for 12 months
ID Mobile (3) – £16
Lebara (Vodafone) – £9.98 for 3 months than £24.95
Spusu (EE) is the closest to Sky at £34.90 and even they have offers at £29.90 every now and again
Sky are miles off with in pricing. Add to this that the full MNOs (O2, Voda, 3, EE) all charge more then the ceapest examples above for unlimited data. Plus many network owned MVNOs are treated as seperate businesses to the main networks and are expected to pay wholseale to the main network and Sky’s arguments about not being able to compete with the MNOs falls apart.
So by sky’s stupid logic of unlimited speed tiers, shouldn’t they also be going after EE who also offer unlimited speed tiers? Sky really are a bunch of driveling idiots
Not sure why everyone keeps going on about we will be down to 3 operators. In terms of masts we only have 3 operators now because 99% of vodafone and o2 masts in rural areas are shared so this merger would reduce down to 2 operators in these areas technically EE VS the others o2/three/voda
Vodafone are the current worst network in terms of tech. I can never get speeds equivalent to EE anywhere even in cities like London. Voda also keep demolishing their masts and sharing o2 masts which has ruined the o2 network where I live now EE is the only option
Most people thinking about how the merger effects them, and not how it effects the greater good.
Being down to 2 providers is bad news for competition, the consumer, accountability and fairness.
force three and voda to sell off some bandwith at a reduced price to allow another operator to start up in the mobile space and force them to provide mast sharing for the first 5 years etc in order to build a customer base and national network
Sky are an absolutely awful ISP with some seriously dodgy sales. Had family members explain to me that they can’t move because they would lose their cable, as explained by the nice person at Sky.
They over charge and under deliver. Using legal threats to fight fair competition is par for the course.
lol this is hilarious, one of THE biggest monopoly’s in global media complaining, Sky being the very definition of hypocrisy here.
The whole point of this merger is to put the nail in the coffin of MVNO’s. They don’t make the telco’s anywhere near as much money as customers being directly with them. Three/Voda want them gone. Its not about investment, its about fleecing customers and reducing competition.