Vodafone-Three merger could mean higher prices, UK watchdog warns | Mergers and acquisitions

The planned merger between Vodafone and Three UK, which would create the UK’s largest mobile phone operator, has been referred to an in-depth investigation by the competition regulator.

The Competition and Markets Authority (CMA) said it intended to refer the deal to a more detailed phase 2 investigation amid concerns that mobile customers could face higher prices and reduced quality.

The merger combines two of the four mobile network operators in the UK and will bring 27 million customers under a single network provider, leapfrogging EE, owned by BT, and Virgin Media O2, owned by Spain’s Telefónica and the US-listed company Liberty Global.

The CMA had already carried out an initial phase 1 investigation looking at whether the deal might lead to a “substantial lessening of competition” and said on Friday it had identified concerns that the transaction could lead to higher prices for customers and lower investment in UK mobile networks.

“The CMA is concerned that combining these two businesses will reduce rivalry between mobile operators to win new customers,” the antitrust regulator said, adding that the deal might make it harder for smaller mobile “virtual” network operators such as Sky Mobile, Lebara and Lyca Mobile to negotiate good deals for their own customers.

Julie Bon, the phase 1 decision-maker for the case at the CMA, said: “While Vodafone and Three have made a number of claims about how their deal is good for competition and investment, the CMA has not seen sufficient evidence to date to back these claims.”

Vodafone and Three UK have five working days to respond with solutions to the CMA, otherwise the deal will be referred to a phase 2 investigation that could take 24 weeks.

Vodafone UK and Three UK, owned by CK Hutchison, said in a statement the regulatory decision had been expected.

Robert Finnegan, the chief executive of Three UK, said: “The current market structure is holding the UK back, which is not good for customers or competition. By creating a third player with the necessary scale to invest, the combination of our two companies will deliver one of Europe’s most advanced networks and move the UK into the digital fast lane, benefiting customers from day one.”

Ahmed Essam, Vodafone UK’s chief executive, said: “Having reached this important milestone, we look forward to working with the independent panel on the phase 2 process.”

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The UK had been one of three markets, along with Italy and Spain, that Vodafone’s chief executive, Margherita Della Valle, identified as needing action by Vodafone. Vodafone UK and Three UK are seen as subscale in the UK and are unable to cover their cost of capital and are constrained in their ability to invest.

Last week, Vodafone announced it was taking action in Italy, where it is selling its Italian business to Swisscom for €8bn in cash and it announced last year it was selling its Spanish operations. The proceeds from the sale will go back to shareholders.

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