CMA to launch phase 2 investigation in relation to Vodafone and Three merger

Back on 26th January 2024 the CMA launched its initial investigation (phase 1) into the proposed merger between Vodafone UK and Three UK, and the conclusion of that investigation is that there may be a negative impact on the consumer market and therefore a phase 2 investigation will need to take place.

The CMA has decided, on the information currently available to it, that it is or may be the case that this merger may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom. This merger will be referred for a phase 2 investigation unless the parties offer acceptable undertakings to address these competition concerns. The full text of the decision will be published in due course.

CMA on Vodafone/Three merger

We are not surprised by the CMA taking things to a phase 2 investigation since reducing the UK mobile market from four big players down to three is not something to approve on a whim and deserves due consideration beyond the financial returns for the companies involved. A big part of the investigation will be on modelling the effect the merger will have on the market, particularly as Three is often perceived as a low cost mobile network, especially with the existence of the Smarty sub brand.

If the merger is approved the UK mobile market will comprise of three groups BT/EE, Virgin Media O2 and Vodafone/Three. The pro argument for the merger is that the economy of scale will help fund further roll-out and improvements to services, the negative side is largely around the impact on consumer choice and pricing and the impact on the mobile virtual network operator (MVNO) market.

The merger will also bring Three into the fixed market fold, and while Vodafone does not own a fixed consumer full-fibre network they are big players on the CityFibre network and also consumer Openreach products. Virgin Media O2 is the most vertically integrated fixed line operator, but is actively working towards wholesale propositions for its fixed network. BT/EE are heavily regulated in terms of the linkages to the Openreach network. This convergence of fixed and mobile is important going forward as with copper telephone lines vanishing we may see more use of mobile solutions embedded into routers for full-fibre services e.g. fail-over to the mobile network if there is a power cut or failure of a fibre, this will help to ensure uptime for voice over broadband services and in 10 to 15 years ensure that live TV over broadband is as reliable as freeview/freesat.

Having reached this important milestone, we look forward to working with the independent panel on the Phase 2 process. By merging our two companies, we will be able to invest £11 billion to help the UK realise its ambitions to be a world leader in next-generation 5G technology, and increase competition across the industry. This transaction will create an operator with the scale required to take on BTEE and VMO2, give MVNOs greater choice in the wholesale market and is in the wider interests of customers, competition and the country.

Vodafone UK CEO, Ahmed Essam

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.

Three UK CEO, Robert Finnegan

The challenge facing the CMA is figuring out if the merger will actually create the transformation both CEO say it will. I am sure I am not alone when all too often seeing a 5G signal on a device but no usable data connectivity ensues.