On 5th December 2024, the Competition and Markets Authority (CMA), the UK’s consumer market watchdog, gave Vodafone and Three the green light to merge and create the country’s largest mobile operator. Three and Vodafone are two of the UK’s four major network operators, alongside Virgin Media O2 and BT/EE. The merger will create a network of more than 27 million mobile subscribers.

Approval Marks the End of an 18-month Battle

The £16.5bn deal’s approval came after an 18-month battle with CMA. Vodafone and Three announced the merger for the first time in 2023. However, the regulatory authority initially opposed it, fearing it would increase consumer prices.

In September, CMA cautioned that consumers could face higher prices after the merger and demanded concessions from the merging companies. The competition watchdog’s initial concerns were as follows:

That the merger could cause price increases for tens of millions of mobile network service consumers;
Consumers stood to see reduced services, such as smaller data packages in their service contracts;
Reduced services and higher bills could negatively affect consumers least able to afford services, as well as those who would pay more for network-quality enhancements they don’t value;
The merger could negatively impact third-party wholesale telecoms customers, such as Lebera, Lyca Mobile and Sky Mobile, on their existing contracts; and
The merger could reduce the number of network service providers in the UK from four to three, making it challenging for consumers to get competitive terms.

The regulator had to weigh the companies’ investments against the costs to consumers and rival network providers. Following a thorough, considered approach to its investigation, CMA gave recommendations on how the two companies could merge without compromising market competition and consumer rights.

Upon factoring in the regulator’s findings and recommendations, Vodafone and Three revised their deal. Against this backdrop, CMA made its final decision, approving the merger on December 5th, 2024.

CMA Set Conditions for Vodafone and Three

CMA approved the merger on the condition that both companies would meet specific requirements in the next three years. They are required to offer consumer protection against price increases and commit to upgrading 5G network coverage across the country.

The market competition watchdog said the new entity would be subject to a legally binding commitment to spend £11bn on upgrading the merging companies’ combined network.

The deal requires Vodafone and Three to commit to retaining specific existing data plans and mobile tariffs for at least three years. The new entity must also commit to pre-agreed prices and other contract terms to ascertain that third-party mobile virtual network operators can obtain competitive wholesale deals.

What Vodafone CEO Had to Say About the Deal

In a statement issued to the London Stock Exchange, Vodafone’s CEO, Margherita Della Vella, said CMA’s approval of the merger creates a new force in the UK’s telecoms market that will unlock the investments required to build robust network infrastructure in the country.

Della Vella further noted that businesses and consumers will enjoy better-quality connections, faster speeds and broader coverage across the UK as the business builds the best and biggest network in the country’s market.

She said CMA’s approval “released the handbrake on the country’s telecom industry”. She told the BBC the deal is self-funded, with no public funding and no extra costs to be passed down to consumers.

What Three’s Deputy Chair Had to Say About the Merger

Canning Fok, Deputy Chair of CK Hutchison, which owns Three, said that when Vodafone merges with Three, CK Hutchison will support the new entity in implementing its network expansion plan, which was the basis for CMA’s approval. According to Fok, the deal will transform the UK’s digital infrastructure and telecoms industry, ensuring consumers benefit from world-class 5G network quality.

CMA’s Vote of Confidence

Stuart McIntosh, Chair of CMA’s independent inquiry group investigating the merger, stressed that it is important it does not harm competition. McIntosh said the regulatory body spent enough time evaluating how the merger could impact the local telecoms market.

According to McIntosh, CMA considered the evidence before it, as well as feedback received from stakeholders and consumers. He also gave a vote of confidence, saying that the merger is likely to promote competition in the country’s mobile network sector. He justified the authority’s approval on the condition that Vodafone and Three implement proposed measures.

CMA and Ofcom will jointly oversee the implementation of Vodafone and Three’s commitments, which include enhancing the UK’s 5G network while promoting effective competition in the telecoms sector.

Experts’ Take on the Deal

According to Karen Egan, an analyst at Enders Analysis, CMA’s approval of the merger was the expected outcome after Hong Kong’s Hutchison hinted it was struggling to make investments because it did not make a return on its capital.

Egan added that three high-quality network providers will serve businesses and consumers better than four inferior providers. He also noted that the sector can now move away from the low investment cycles and low returns it has witnessed.

What’s Next?

Three and Vodafone said they will study and act on CMA’s final report and continue engaging the regulator before the merger is formalised next year. When the deal is formally completed, Vodafone will own 51% of the new entity’s equity.

Vodafone will have the option to acquire Hutchison’s 49% stake after three years. However, the put-and-call option is subject to express conditions set out in the contract. The merger agreement is due to be formally completed in the first quarter of 2025.

Source: The Guardian

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