The Competition and Markets Authority has today appeared to give a “provisional” approval to Vodafone and Three UK’s recently tabled commitments (here) under their proposed merger agreement (here), which were intended to placate concerns that the deal could result in a “Significant Lessening of Competition” (SLC) in the mobile market. But it will require changes.
The merger itself, which would see Vodafone retain a 51% slice of the business and CK Hutchison (Three UK) hold 49%, has repeatedly been promoted as something that would be “great for customers, great for the country and great for competition,” while also resulting in a major £11bn investment to upgrade the UK’s 5G mobile (broadband) infrastructure and network coverage. This would be a big help to the government’s own 5G targets.
NOTE: The combined business aspires to reach more than 99% of the UK population with their 5G Standalone (SA) network by 2034 and push fixed wireless access (mobile home broadband) to 82% of households by 2030, among other things.
However, the CMA’s investigation (here) found that reducing the number of primary mobile operators from 4 to 3 would result in a “Significant Lessening of Competition” (SLC), giving rise to various concerns at the retail and wholesale level. Some examples include the risk of higher prices for consumers, reduced quality, job losses (not a matter for the CMA), dominance of spectrum ownership, tedious confidentiality issues with conflicting network sharing agreements (e.g. EE and Three UK) and less competition at the virtual operator [MVNO] level.
The CMA also doubted the benefits and credibility of an expanded 5G SA roll-out, while at the same time noting that both operators were in fact “viable and competitive businesses and that they would continue to invest in their networks absent the Merger“. Despite those concerns, the CMA left the door open for a potential agreement by recommending some possible remedies (here), which both Vodafone and Three UK felt they could accommodate.
The operators responded by setting out a series of headline commitments (here), which included making their network coverage targets enforceable by Ofcom (binding), divesting some radio spectrum bands to O2 (partly supported by Vodafone’s recent network sharing deal with VMO2 – here), providing a new reference offer to satisfy MVNO providers and limited protections for some retail prices.
The CMA’s Response
The big question mark was over how the CMA might react, particularly since the proposed commitments seemed, in some areas (e.g. retail pricing), to be a bit weak. The competition authority had previously indicated that Vodafone and Three UK might need to set a higher bar of commitments in order to secure the green light.
On the other hand, the challenge for Vodafone and Three UK is to find a balanced set of commitments that make sense, while avoiding a situation that could remove too many of the merger’s potential benefits (i.e. making it economically and competitively unviable).
The CMA has today given their verdict on all this, which provisionally finds that a multi-billion-pound commitment to upgrade the merged company’s network across the UK, including the roll-out of 5G, combined with short-term customer protections “could solve competition concerns identified in September and allow the merger to go ahead.” But the CMA will require some stronger commitments from the operators.
The remedies proposed today would require Vodafone and Three to:
➤ Deliver their joint network plan – which sets out the network upgrade and improvements they will make through significant levels of investment over the next 8 years across the UK. This would be a legal obligation overseen by both Ofcom – the telecoms regulator – and the CMA.
➤ Commit to retain certain existing mobile tariffs and data plans for at least 3 years, protecting millions of current and future Vodafone / Three customers (including customers on their sub-brands) from short-term price rises in the early years of the network plan.
➤ Commit to pre-agreed prices and contract terms to ensure that Mobile Virtual Network Operators can obtain competitive wholesale deals.
The deadline for responses to the new Remedies Working Paper on all this is 5pm on Tuesday 12th November 2024. But rather annoyingly, the CMA hasn’t yet published this paper in public (it’s expected later today), so we can’t yet analyse the detail. However, on the surface, it appears as if the CMA’s requirements, such as on areas like consumer pricing, appear to go further than the more restrictive approach proposed by the operators.
Stuart McIntosh, Chair of the CMA Inquiry Group, said:
“We believe this deal has the potential to be pro-competitive for the UK mobile sector if our concerns are addressed.
Our provisional view is that binding commitments combined with short-term protections for consumers and wholesale providers would address our concerns while preserving the benefits of this merger.
A legally binding network commitment would boost competition in the longer term and the additional measures would protect consumers and wholesale customers while the network upgrades are being rolled out.”
The deadline for a final outcome is currently still 7th December 2024, although we suspect this proposal will be one that Vodafone and Three UK can accept (we’ll update with their formal response once it drops). However, many consumers will no doubt be concerned, particularly with respect to what might happen after the 3-year period of tariff protection expires (e.g. big price hikes).
Take note that the tariff protections are unlikely to extend to stopping the usual mid-contract price hikes that mobile operators tend to deploy each year, as these are normally an allowable change. But we’ll need more detail before being able to confirm.
