The U.K.’s Competition and Markets Authority warned on Friday that Vodafone’s proposed merger with rival CK Hutchison will be investigated thoroughly unless the two mobile operators give “meaningful solutions” to the regulator’s concerns.
Vodafone and CK Hutchison’s British brand Three have five working days to provide their responses.
The CMA started an investigation into the proposed merger in January. In its most recent statement on Friday, the CMA expressed worry that the acquisition would significantly reduce competition, result in higher consumer costs, and create an adverse environment for mobile virtual network operators.
Mobile virtual network operators, or MVNOs, are a slew of new network operators that have emerged throughout the years, using existing telco infrastructure rather than starting from scratch.
Vodafone and CK Hutchison announced last year that they would merge their U.K. companies, giving Vodafone a 51% controlling holding and CK Hutchison a minority position. Ahmed Essam, CEO of Vodafone UK, was expected to lead the new company, with Darren Purkis, Chief Financial Officer of Three UK, as the CFO.
Higher pricing and lower quality.
The CMA stated on Friday that the proposed deal between Vodafone and CK Hutchison could result in higher pricing and lower quality for UK mobile users. The CMA stated that Vodafone and Three, two of Britain’s four largest network providers, provide crucial choices for customers.
According to the CMA, Three is often the cheapest of the UK’s main four mobile networks, and merging with Vodafone might “reduce rivalry between mobile operators to win new customers.”
The CMA also expressed concern that the transaction will make it more difficult for MVNOs like Sky Mobile, Lebara, and Lyca Mobile to negotiate favorable prices for their customers. Notable mobile virtual network operators use both Vodafone and Three.
Lebara and Asda Mobile use Vodafone, and Superdrug Mobile is one of the MVNOs that uses Three.
Vodafone and Three said the CMA’s statement that it wants to send their merger for an in-depth Phase 2 examination was a “expected next step in the process and in line with the timeframe for completion that we set out from the outset.”
In a joint statement, the two companies expressed their continued confidence that the acquisition will benefit competition, customers, and the United Kingdom.
They stated that the quality of mobile network services in the United Kingdom lags significantly behind that of other European countries, and that their networks are “sub-scale, unable to cover their cost of capital, and constrained in their ability to invest and compete effectively” against market leaders EE and Virgin Media O2 (VMO2).
Vodafone’s Essam, on Friday, stated that the agreement would “create an operator with the scale required to take on BTEE — referencing BT and its mobile brand EE — and VMO2, give MVNOs greater choice in the wholesale market and is in the wider interests of customers, competition and the country.”
Robert Finnegan, CEO of Three U.K., stated that the present market structure is “holding the U.K. 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 U.K. into the digital fast lane, benefiting customers from day one,” said Finnegan.
