Vodafone-Three merger could lead to higher prices, warns competition watchdog

The proposed merger between mobile networks Vodafone and Three could lead to “higher prices” and “reduced quality” for customers, the competition watchdog has warned.

The Competition and Markets Authority (CMA) said the deal will now face an in-depth investigation unless both companies can soon address their worries.

Vodafone and Three first announced the £15bn merger last summer. It would create the UK’s largest mobile phone network.

The two mobile firms have argued the deal will allow them to increase investment and better compete with major rivals, EE operator BT and Virgin Media-O2.

However, the Competition and Markets Authority (CMA) launched an initial phase 1 investigation into the move in January and said on Friday it has concerns over the impact of two the UK’s four largest mobile firms merging.

It is “concerned the deal … could lead to mobile customers facing higher prices and reduced quality”.

The regulator said it found in its initial probe that the two companies are important alternatives for mobile customers and combining these two businesses will reduce rivalry between mobile operators to win new customers.

Julie Bon, Phase 1 decision-maker for this case at the CMA, said: “Whilst Vodafone and Three have made a number of claims about how their deal is good for competition and investment, the CMA has not seen sufficient evidence to date to back these claims.

“Our initial assessment of this deal has identified concerns which could lead to higher prices for customers and lower investment in UK mobile networks.

“These warrant an in-depth investigation unless Vodafone and Three can come forward with solutions.”

The watchdog also raised concerns that the deal “may make it difficult” for smaller mobile operators such Sky Mobile, Lebara and Lyca Mobile to negotiate good deals for their own customers, by reducing the number of mobile network operators who will host them.

Vodafone and Three have said they will review the CMA’s concerns and will “engage constructively” with the regulator.

Vodafone UK chief executive officer Ahmed Essam said: “Having reached this important milestone, we look forward to working with the independent panel on the phase two process.

“By merging our two companies, we will be able to invest £11bn 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 BT/EE and Virgin Media-O2, give MVNOs (mobile virtual network operators) greater choice in the wholesale market and is in the wider interests of customers, competition and the country.”

Three UK chief executive officer Robert Finnegan said: “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.”