Britain’s competition regulator says it is minded to approve the merger of telcos Vodafone and Three UK, if the pair commit to network upgrades and short-term customer safeguards against higher bills.
“We believe this deal has the potential to be pro-competitive for the UK mobile sector if our concerns are addressed,” said Stuart McIntosh, chair of the inquiry group leading the investigation at the Competition and Markets Authority (CMA).
“Our provisional view is that binding commitments combined with short-term protections for consumers and wholesale providers would address our concerns while preserving the benefits of this merger.
“A legally binding network commitment would boost competition in the longer term and the additional measures would protect consumers and wholesale customers while the network upgrades are being rolled out.”
Previous findings from the CMA warned that the merger of Vodafone and Three, Britain’s third and fourth largest cellular operators, might lead to higher prices for users and less choice for Mobile Virtual Network Operators (MVNOs) – including Sky Mobile and Lebara – which rely on the physical infrastructure to provide their own services.
The CMA will publish its Remedies Working Paper later today, November 5, setting out what it believes to be appropriate measures to address these concerns. Other interested parties will then have one week – until 1700 on November 12 – to give their responses, with the final decision due before the December 7 statutory deadline.
These remedies are likely to include a requirement for Vodafone and Three to deliver on their £11 billion ($14 billion) joint network plan, which promises significant joint investment over the next eight years to upgrade their combined infrastructure.
The two telcos issued a report last month claiming their current networks were “outdated” due to lack of investment, and said the proposed merger would unlock the funding needed to deliver a modern 5G Standalone (5G SA) infrastructure across most of the UK.
According to the CMA, this would become a legal obligation, to be enforced by both itself and telecoms regulator Ofcom.
Another commitment is for Voda-Three to retain certain current mobile tariffs and data plans for at least three years to protect customers, especially those using “value” sub-brands operated by the two telcos at the moment. The duo had already pledged to maintain retail mobile tariffs at £10 or below for at least two years after an approved merger.
The third remedy would be a commitment to pre-agreed prices and contract terms (MVNOs), to allow them to obtain competitive wholesale deals.
The two companies have already offered to sell excess spectrum to Virgin Media O2 (VMO2) if their planned amalgamation is given the go-ahead.
Vodafone and Three offered a cautious welcome to the CMA’s announcement today, saying they would need to study the Remedies Working Paper in detail, but based on the outline: “We believe it provides a path to final clearance.”
Initial reaction from industry watchers is that this merger is now essentially a done deal, for good or ill.
“Vodafone and Three can tentatively order in the champagne,” said CCS Insight’s director of Consumer and Connectivity, Kester Mann.
“After months of scrutiny, the CMA indicated it is ready to accept the proposed remedies offered by Vodafone and Three to finally allow their planned merger to proceed,” he added.
Megabuyte chief analyst Philip Carse said: “One assumes the merger is now pretty much sealed bar the shouting.”
He added: “The CMA has until December 7 to publish a final decision on a merger that would create a c. £8.4bn revenue, £1.5bn EBITDA and £1.1bn capex business, with a similar one-third UK mobile market share as EE and VM02,” referencing the two biggest mobile operators in the country.
However, not everyone is likely to be happy with this arrangement. BT, which owns EE, has previously said the Voda-Three merger should not be allowed to proceed as it believes this will limit competition.
Sky said it feared the alliance would limit choice of network operators for its MVNO, Sky Mobile, while the Unite Union expressed concerns over likely price increases for mobile customers, or else a reduced service such as smaller data allowances in contracts.
“The watchdog’s statement won’t be welcomed by all. BT and Sky Mobile have sternly opposed the deal and are likely to vociferously attempt one final time to have it blocked before the CMA’s final deadline in less than five weeks,” commented Mann.
“Approval would mark one of the most significant developments in the history of UK mobile, heralding the arrival of a new market leader with over 29 million customers,” he added. ®