CMA raises threat of Phase 2 probe into Vodafone-Three merger

Source: Vodafone

Vodafone and Three have been given five working days to respond to concerns raised by competition watchdog the Competition and Markets Authority to address concerns that the deal may result in higher mobile prices and reduce investment in order to avoid a Phase 2 probe into their planned merger.

The CMA launched its initial Phase 1 investigation into the merger in January after it was notified by Vodafone UK and Three UK. The 40 working day review is designed to identify whether the deal may lead to a ‘substantial lessening of competition’ – focusing on the potential impact on consumers and businesses in the UK – and therefore requires an in-depth, phase 2 investigation. Phase 2 investigations allow an independent panel of experts to probe in more depth initial concerns identified at Phase 1.

The watchdog is concerned that combining the two businesses will reduce competition between mobile operators and that the deal may make it difficult for smaller mobile virtual network operators such as Sky Mobile, Lebara and Lyca Mobile to negotiate good deals for their own customers, by reducing wholesale competition.

Addressing the main defence of the merger – that it would help the pair increase investment in infrastructure – the CMA said that Vodafone UK and Three UK’s claims are based on a number of assumptions about how they will combine and invest in their networks post-merger. It said these assumptions need more detailed assessment, particularly given the CMA’s concerns that the merger may reduce mobile operators’ overall incentives to invest in their networks.

“Millions of people in the UK depend on effective competition in the mobile market in order to access the best deals for them. Whilst 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,” said Julie Bon, Phase 1 decisionmaker for this case at the CMA.

“Our initial assessment of this deal has identified concerns which could lead to higher prices for customers and lower investment in UK mobile networks. These warrant an in-depth investigation unless Vodafone and Three can come forward with solutions.”

“Great for competition”

Vodafone and Three’s owner CK Hutchison agreed their long-anticipated UK merger in June last year. Vodafone will hold a 51% stake in the combined company, with CK Hutchison Holdings taking 49%.

The partners committed to invest £11 billion in the UK over 10 years to create an advanced 5G network, which they said will deliver up to £5 billion a year in economic benefits by 2030.

Vodafone and CK Hutchison pitched the deal as “great for competition”, arguing that it will create a third operator with scale necessary to take on the two major converged players – BT/EE and Virgin Media O2.

The pair said they would offer fixed wireless access via the 5G network to 82% of homes by 2030, complementing access to a fibre footprint.