Britain’s competition watchdog said on Friday it found competition concerns with the proposed merger of the two companies. Vodafone and the three major UK mobile networks owned by CK Hutchison.
The Competition and Markets Authority (CMA) said the deal would lead to price increases for tens of millions of customers or result in some users receiving reduced services. The regulator also warned it would have a negative impact on so-called mobile virtual network operators (MVNOs), which rely on existing infrastructure.
“The CMA has preliminarily concluded that the merger will result in a significant lessening of competition in the UK retail and wholesale mobility markets,” the regulator said in a release.
The deal announced by Vodafone and CK Hutchison last year will combine the two brands’ UK operations, with Vodafone taking a 51% controlling stake and CK Hutchison taking a minority stake.
But the CMA launched an antitrust investigation into the deal in January and announced an in-depth investigation in April.
The regulator said on Friday the merger would lead to higher prices or reduced services and could “negatively impact those customers who can least afford mobile services”.
The merger of Vodafone and Three UK would also reduce the number of major telecoms network operators from four to three, the regulator said, adding that it could make it harder for MVNOs to secure competitive deals, potentially reducing Their ability to offer competitive rates to their customers.
However, the CMA does recognize that the deal “can improve the quality of mobile networks and advance the deployment of next-generation 5G networks and services,” as both merged networks claim.
However, the CMA said these claims were likely to be “exaggerated” and the combined company “would not necessarily have an incentive to continue with its proposed investment plans post-merger”.
The CMA did not block the deal.
Vodafone responds
Vodafone said the combined entity would invest 11 billion pounds ($14.46 billion) in UK telecoms infrastructure.
“It brings huge benefits to consumers in towns, cities, across the country,” Vodafone Europe CEO Ahmed Essam told CNBC’s “Squawk Box Europe” on Friday. “
Vodafone believes that the UK’s digital infrastructure still lags behind other major economies, and its investment will help promote the development of areas such as next-generation 5G networks and expand coverage in more areas of the country.
Vodafone said in a separate statement on Friday that it disagreed with the findings that the merger would lead to higher consumer prices. The company said the merger would not affect its pricing strategy and that competition among mobile virtual network operators would intensify.
“I think every consumer in the UK today realizes that there are not just four players in the market… there are over a hundred players in the market offering huge offers. With this merger we bring a third A premium network at scale that can compete and deliver better results for customers,” Essam said.
What to do next?
The CMA said it will now consult on the interim findings and potential solutions to the competition concerns, including remedies. These may include legally binding investment commitments and measures to protect retail and wholesale customers.
The regulator said the CMA may block the merger if its concerns cannot be resolved.
Essam said Vodafone was ready to make its commitment to invest £11bn in infrastructure legally binding and roll it out at the promised pace.
“We work closely with the CMA … these are provisional findings, which means we will work with the CMA over the next three months to address any concerns they have,” Essam said.
The CMA will publish its final report on December 7 this year.
