Vodafone Group’s deal to merge its U.K. business with rival operator Three raises competition concerns, the U.K.’s antitrust authority said, creating uncertainty on a deal poised to shake up the country’s telecommunications market.
The Competition and Markets Authority said Friday that an in-depth probe into the deal provisionally concluded the combination could result in higher prices for tens of millions of mobile customers in the U.K. and not necessarily lead to higher network investments. The companies rejected the findings and said they would work with the CMA to secure an approval.
“Vodafone and Three UK disagree with the CMA’s provisional findings that their merger raises competition concerns and could lead to price rises for customers,” the companies said.
U.K. telecoms group Vodafone and CK Hutchison Holdings’ Three struck a deal to combine their U.K. businesses in June last year, with Vodafone owning 51% of the merged entity and the remaining 49% in the hands of the Hong Kong-based conglomerate.
The merger was a major step in Vodafone Chief Executive Margherita Della Valle’s plan to streamline the group’s portfolio and cut debt, alongside deals in Spain and Italy. In a separate move, Vodafone’s sale of its Italian operations to Swisscom for 8 billion euros ($8.86 billion) is also under the scrutiny of Italian antitrust authorities, who opened an in-depth probe into the deal this week.
The CMA’s concerns on the Vodafone-Three tie-up extend to the wholesale market as well.
The regulator said the merger would reduce the number of companies that operate telecom networks to three from four, making it more difficult for telecom businesses such as Lyca Mobile, Sky Mobile and Lebara to get competitive terms in their wholesale contracts, which could end up affecting retail customers.
Vodafone and Three pledged to invest 11 billion pounds ($14.44 billion) in the U.K. over ten years at the time of the deal to create an advanced next-generation 5G network, in line with the U.K. government’s ambitions.
However, the CMA said it currently considers the companies’ claims to be overstated. While the deal could improve the quality of mobile networks and accelerate the deployment of 5G coverage, the enlarged business wouldn’t necessarily have the incentive to deliver on its investment promises, the regulator said.
“We will now consider how Vodafone and Three might address our concerns about the likely impact of the merger on retail and wholesale customers while securing the potential longer-term benefits of the merger, including by guaranteeing future network investments,” said Stuart McIntosh, chair of the independent group that led the investigation.
The CMA will consider potential solutions to its concerns before making a final decision by Dec. 7.
