• The UK’s Competition and Markets Authority (CMA) has finally given the green light for consolidation in the UK mobile market
• The merger is on the proviso that Vodafone UK and Three accept legally binding commitments on joint rollout of a 5G-Advanced network and tariff caps
• The CMA, crucially, agrees with Vodafone UK-Three that by increasing network quality through its proposed £11bn investment, competition will be boosted and users will benefit
• Analysts say the remedies are less onerous than originally anticipated
• But they warn of the enormous challenge of pulling off network integration without upsetting customers

The UK’s Competition and Markets Authority (CMA), after wide industry consultation and lengthy deliberation by an independent inquiry team, has finally given Vodafone Group and CK Hutchison the go-ahead to merge their respective UK telecoms businesses: Vodafone UK and Three UK.

The CMA says it is now satisfied that the proposed £16.5bn merger, with certain legally binding remedies in place, will not result in a “substantial lessening of competition” in either the retail or wholesale markets.

The UK watchdog, crucially, has also taken on board the argument put forward by Vodafone and Three that its planned £11bn joint investment to build a 5G-Advanced network that reaches 99% of the population will be an all-round boon to the UK. By increasing network quality, the CMA agrees with the duo that competition will be boosted between mobile network operators in the long term and that “millions of people” relying on mobile services will benefit.

The road is now clear for a new mobile network operator (MNO) leader to emerge in the UK which, with 29 million subscribers, leap-frogs rivals EE (owned by BT) and Virgin Media O2 (VMO2).

“The outcome – after months of intense regulatory scrutiny – is about as good as it could have got for Vodafone and Three,” remarked Kester Mann, director of consumer and connectivity at CCS Insight. “Not only did they secure approval but the agreed remedies and commitments are less onerous than feared.”

Vodafone and CK Hutchison, not surprisingly, welcomed the CMA’s decision with open arms. “Today’s approval releases the handbrake on the UK’s telecoms industry, and the increased investment will power the UK to the forefront of European telecommunications,” asserted Vodafone Group CEO Margherita Della Valle. 

Canning Fok, deputy chairman of CK Hutchison, who talked effusively of “transforming the UK’s digital infrastructure”, has perhaps more reason to be more cheerful than Della Valle. “Overall, it’s a big deal for both players, arguably even more so for Three given its business model would have been unsustainable in the long term,” noted Paolo Pescatore, industry analyst and founder of PP Foresight.

We’re watching you

The CMA, along with UK telecom regulator Ofcom, will be keeping a watchful eye on the pair to see if they stick to their network investment commitments and play ball on retail and wholesale tariff remedies. If not, indicated the UK competition watchdog, it will pull the plug on the merger.

A legally binding network plan will set out the network upgrade, integration and improvements Vodafone and Three must make to their combined network across the UK over the next eight years. The merged company is required to publish an annual report setting out its progress on network plan implementation.

There is also a capping of selected mobile tariffs and data plans for three years, designed “to protect large numbers of customers from short-term price rises” in the early years of the network plan. Pre-set prices and contract terms for wholesale services – again for three years – must also be offered “to ensure that mobile virtual network providers can obtain competitive terms and conditions as the network plan is rolled out.”

“Having carefully considered the evidence, as well as the extensive feedback we have received, we believe the merger is likely to boost competition in the UK mobile sector and should be allowed to proceed – but only if Vodafone and Three agree to implement our proposed measures,” said Stuart McIntosh, chair of the independent inquiry group leading the investigation.

Not all plain sailing

Pescatore praised the CMA for a “thorough job” scrutinising the merger proposal, adding that the ball is now firmly in the court of both parties to deliver on their promises. He sounded a note of caution that this may prove a challenge, even if the will is there to tick all the commitment boxes.

“A decision [by the CMA] may have been made today but it’s still a waiting game,” he said. “The bottom line is it will take many years before the full merits of the deal are realised, and there’s a lot of tough decisions to come. Merging two networks is no easy feat. While there are past examples with BT/EE and VMO2 to draw upon, it’s not going to be smooth sailing.”

Another danger, added Pescatore, is that rivals will have “a window of opportunity to lure disgruntled customers during this painful integration process”.  Priorities for Vodafone and Three, he continues, will be implementing a successful strategy and choosing a brand that resonates with consumers and business. “On this it is very hard to see the Vodafone brand disappearing from its home core UK market,” he said. On the flipside, Pescatore reckons better price guarantees by the combined entity will be “a big pull for customers” over the next few years.

The Vodafone-Three merger is expected to formally complete during the first half of 2025. Vodafone will own 51% of the equity and, three years after completion – “ subject to certain conditions” – Vodafone may acquire Hutchison’s 49% stake via a put and call option.

CCS Insight’s Mann believes the CMA green light is a “positive” for the broader European sector, which has been clamouring for greater leniency on mergers for years. “It may give operators in other markets fresh confidence to strike new deals of their own,” he said.

- Ken Wieland, Contributing Editor, TelecomTV