Vodafone/Three merger likely to increase mobile prices, warns competition watchdog

The UK competition watchdog has warned that the proposed merger of mobile network operators Vodafone and Three is likely to lead to higher prices and reduced services – but is asking the companies to propose ways to mitigate against any such negative outcome.

The Competition and Markets Authority (CMA) kicked off an investigation into the merger in October last year, and in its latest progress update said that “tens of millions” of mobile customers could see the cost of their mobile packages go up or services such as data allowances reduced.

The CMA also found that the wholesale market – where virtual operators such as Sky Mobile or Tesco Mobile resell airtime from the four network operators, Vodafone, Three, O2 and EE – could see worse deals on offer through the reduction in competition from four to three suppliers.

“As a result, the CMA has provisionally concluded that the merger would lead to a substantial lessening of competition in the UK – in both retail and wholesale mobile markets,” said the CMA in a statement.

Vodafone and Three announced plans to merge in June 2023, which was seen as a response to BT’s 2016 purchase of EE, and the 2021 merger of Virgin Media (VM) and O2.

Vodafone Group chief executive Margherita Della Valle said at the time that the plan would mean “the UK will benefit from the creation of a sustainable, strongly competitive third scaled operator – with a clear £11bn network investment plan – driving growth, employment and innovation”.

The CMA will now consult further on its decision, while offering Vodafone and Three the opportunity to make legally binding commitments to their network investment proposals, overseen by the telecoms regulator Ofcom, as a way to mitigate against the competition concerns.

“The CMA will retain the option to prohibit the merger should it conclude that other remedy options will not address its competition concerns effectively,” it said.

The merged company would have 27 million mobile subscribers in the UK. The two operators have justified the combination by saying it will boost the roll-out of 5G infrastructure and allow greater scale to compete with the larger, converged telecoms and mobile players in BT/EE and VM/O2.

The CMA acknowledged that the merger could improve the quality of mobile networks and bring forward the deployment of next-generation 5G networks and services, but added that it “currently considers that these claims are overstated, and that the merged entity would not necessarily have the incentive to follow through on its proposed investment programme”.

Matthew Howett, CEO of telecoms analyst Assembly Research, said it was “fanciful” that a deal of this size would be approved by the CMA without any sort of remedies being introduced to overcome competition worries.

“Concern over the impact of the merger on prices for consumers was predictable but is remediable. While prices in the UK are already some of the lowest among European peers (including the US and Japan), it’s possible to see a workable commitment to social tariffs, or contracts that give protection to the most sensitive to any rise in prices, even if by a small amount,” he said.

“A legally binding commitment to the £11bn of promised network investment, overseen by Ofcom, would be a win not only for consumers and network quality, but also for the new Labour government.”