The U.K.’s antitrust regulator has made a preliminary decision in the long-running case to merge two of the country’s biggest phone companies.
The Competition and Markets Authority (CMA) says that the planned $19 billion merger between Three and Vodafone, which was revealed 15 months ago, could cause prices to go up for customers, service to get worse (like smaller data plans in contracts), and less investment in U.K. mobile networks.
The CMA also went after the market for mobile virtual network operators (MVNOs). MVNOs were created to make the market more competitive by letting new carriers start up and offer services without having to build all of their own expensive communication equipment. There are MVNOs like iD Mobile and Lebara that use both Three and Vodafone’s networks. The CMA said that a merger could make it harder for MVNOs to get good wholesale deals, which would make user services more expensive.
Besides worries about competition, there was at least one more thing that could have stopped this merger. Some people say that Three could be forced to give secret information to the Chinese government because it is owned by CK Hutchison Holdings, a Hong Kong conglomerate that has to follow a national security law that China passed in 2020. The U.K. passed the National Security and Investment Act in 2022 to deal with situations like this. The government had previously used this law to stop other deals between U.K. companies and Chinese ones.
But in May, the U.K. government gave the Three/Vodafone merger the go-ahead on security grounds, with some conditions. The CMA will now handle any leftover regulatory issues.
Close Examination
Because it would cut the number of mobile network operators (MNOs) in the U.K. from four to three (O2 and EE), this deal was always going to be closely watched by regulators. The two companies were ready for this to happen, and at the time they said they would wait until the end of 2024 to complete the deal.
The CMA began its “phase 1” investigation at the end of January. In June, after a thorough study of the market and consultation with industry representatives, the investigation was expanded to include all aspects of the matter.
According to these results, competition helps keep prices low in the long run. This means that cutting down from four major players to three could cause prices to rise, with Three and Vodafone together taking up almost a third of the U.K. market. The CMA also found that separate companies are more likely to invest in network coverage to offer a service that is different from the competition. This means that if there is less competition, infrastructure investment might go down.
Tom Smith, who used to be the legal director of the CMA and is now a competition lawyer at the London law company Geradin Partners, told TechCrunch, “This case has pitted an investment argument against a competition argument.” “The businesses say they need more scale to invest, but taking away one of the four network operators is likely to cause prices to go up.” The CMA said today that the parties have not shown their investment case well enough to counteract the bad effects of the merger.
In its report released today, the CMA says that the merger could make mobile networks better if it goes through. However, it’s not clear what the companies will do to make the investment once the deal is done.
Treatments
The choice made today is only temporary. The regulator has now started the formal period and given the parties possible solutions to solve its problems. Structured remedies like divestiture (selling off IP or parts of their companies) are part of this. The CMA says this is not likely to happen because there isn’t a clear spin-off that can run as a separate business. In this case, the CMA did mention another option: a “partial divestiture” of certain mobile network assets and spectrum to make a current MVNO more competitive or give a new provider enough assets to enter the market as an MNO.
On the other hand, the CMA said that stopping the merger would be the best way to meet all of its concerns.
The CMA also suggests some behavioral solutions, such as specific promises about their network investment plans and time-limited protections for its retail customers (like MVNOs) during the initial network integration phase to keep prices and terms from changing negatively. Wholesale market fixes, like limiting network capacity for MVNOs, could also be part of this.
“The focus will now shift to how effective” the proposed solutions are, Smith said. The CMA rarely changes its mind between making a provisional decision and making a final decision.
Smith said, “The CMA has suggested a number of possible solutions, such as keeping an eye on the investment promises and keeping prices from going up in the meantime.” “This kind of punishment for bad behavior would be very rare in CMA merger cases.”
Three and Vodafone said in a joint statement that they don’t agree that the merger would cause prices to go up in either the retail or bulk markets. They also said that they are now looking over the possible solutions and “look forward to working constructively with the CMA” on the different choices that have been made. They also said that they are okay with Ofcom keeping an eye on and enforcing the commitment to put £11 billion in the network.
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According to Three CEO Robert Finnegan, the U.K. mobile market has four players, but only two strong ones and two weak ones. This means that there isn’t enough quality competition. „This is shown by the fact that the U.K.’s digital infrastructure is not even close to what the country needs and deserves right now. We are committed to put the CMA’s temporary worries at ease and work with them to make sure that this merger brings a lot of good things to U.K. customers, businesses, and society as a whole.
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