The Competition and Markets Authority (CMA) has decided Vodafone’s £16.5 billion (€19.9bn) merger with Three – creating the UK’s biggest mobile network with 27 million customers – should be allowed to proceed if both companies sign binding commitments to “invest billions” to roll out a combined 5G network across the UK.
The network commitment would be supported by shorter term customer protections which would require the merged company to cap certain mobile tariffs and offer preset contractual terms to mobile virtual network operators, for a period of thre years.
In September, the independent inquiry group leading the in-depth Phase 2 investigation of the merger provisionally found it could lead to higher prices for customers and less advantageous terms for virtual network providers (which depend on networks like those provided by Vodafone and Three to supply their own retail customers).
Since publishing those findings, the group has explored how its concerns might be resolved and in November published a remedies working paper which included a range of potential remedy options. The group has since analyzed responses to the working paper and engaged with respondents. The group has also sought further input from Ofcom, the communications regulator.
In its final decision, the group has confirmed it is now satisfied that the proposed network commitment, supported by shorter term protections for both retail and wholesale customers, resolve its competition concerns.
The merger will therefore be allowed to proceed subject to the following legally binding commitments which require:
- Delivery of the joint network plan, which sets out the network upgrade, integration and improvements Vodafone and Three will make to their combined network across the UK over the next 8 years. The group has concluded that by significantly improving the quality of the combined network, the full implementation of this plan would boost competition between the mobile network operators in the long term, benefiting millions of people who rely on mobile services.
- Capping selected mobile tariffs and data plans for three years, directly protecting large numbers of Vodafone / Three customers from short-term price rises in the early years of the network plan.
- Offering pre-set prices and contract terms for wholesale services (again for three years) to ensure that virtual network providers can obtain competitive terms and conditions as the network plan is rolled out.
The network commitment would be overseen by both Ofcom and the CMA, with the merged company also required to publish an annual report setting out its progress on the implementation of the network plan. The CMA would have responsibility for monitoring and enforcing the protections relating to consumer tariffs and wholesale terms.
Stuart McIntosh, chair of the independent inquiry group leading the investigation, said: “It’s crucial this merger doesn’t harm competition, which is why we’ve spent time considering how it could impact the telecoms market. 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. Both Ofcom and the CMA would oversee the implementation of these legally binding commitments, which would help enhance the UK’s 5G capability whilst preserving effective competition in the sector.”
Commenting on the news, Paolo Pescatore of PP Foresight said: The CMA has done a thorough job of highly scrutinizing this deal, it’s now up to both parties to deliver on their promises. That should mean wins for UK plc – bringing much needed investment in the network – and for consumers in the form of better services. Let’s not forget that VMO2 is one the beneficiaries as it will get some of the excess spectrum from the combined merged entity.”
“A decision may have been made today but it’s still a waiting game. The bottom line is it will take many years before the full merits of the deal are realized, 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. 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.”
“Network leadership will make or break the success of the deal. How much of the so-called promises will be spent on actual networks, when 5G is already widely available. For now, EE still remains the benchmark when it comes to network leadership based upon recent developments and on fiber rollout through Openreach.”
“Rivals will have a window of opportunity to lure disgruntled customers during this painful integration process. Priorities 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. Better price guarantees in the next few years will be a big pull for customers.”
“This will most likely be the last major deal the CMA will see in telco. There are few strategic moves left within the UK,” Pescatore concluded.
Simon Frumkin, CEO of connectivity infrastructure-as-a-service provider Freshwave, said: “The last telecoms merger in the UK led to a lot of investment and innovation, resulting in us being the first European country to launch 4G. Since then, because of the competitive nature of the global ecosystem, the UK has started to fall behind other markets when it comes to network infrastructure deployment and overall quality of service. Meanwhile, BT and EE have maintained a leading network quality score akin to those in first class mobile connectivity markets (specifically a score of over 900 in the recent Global Umlaut PBM scoring system). The UK needs all of our network operators to be world class to maintain our competitiveness as a nation and this merger makes that possible.”
Rafael González, CMO at MedUX, commented: “While the Vodafone / Three merger includes commitments to invest in 5G, general investment alone may not be sufficient to improve the experience for UK citizens and enterprises. Capital expenditure should specifically focus on enhancing 5G coverage, availability, reliability, and performance. With various versions of 5G offering different quality levels, it’s essential to address overlooked factors such as the spectrum bands used, minimum required speeds, and the performance capabilities necessary for new use cases. Considering these factors is crucial for contributing to positive social welfare and improving network quality.”
