Vodafone / Three merger formally approved, subject only to the expected behavioural remedies

As strongly indicated a month ago, a set of behavioural (as opposed to structural) remedies, which were first teased back in September, have proved to be sufficient to allow the UK Competition and Markets Authority to allow the mega-M&A to proceed. For the record, here are the remedies as detailed in the CMA press release.

While both companies moaned about the remedies when they were first proposed, they must secretly be relieved to have had to commit so little. There was even some slightly disingenuous public messaging, insisting that reducing the number of MNOs will somehow increase competition because the combined company will be able to invest more, or something like that.

“Today’s decision creates a new force in the UK’s telecoms market and unlocks the investment needed to build the network infrastructure the country deserves,” said Vodafone Group CEO Margherita Della Valle. “Consumers and businesses will enjoy wider coverage, faster speeds and better-quality connections across the UK, as we build the biggest and best network in our home market. Today’s approval releases the handbrake on the UK’s telecoms industry, and the increased investment will power the UK to the forefront of European telecommunications.”

“When Three and Vodafone are combined, CK Hutchison will fully support the merged business in implementing its network investment plan, the cornerstone of today’s approval by the CMA, transforming the UK’s digital infrastructure and ensuring customers across the country benefit from world-beating network quality,” said Canning Fok, Chairman of CK Hutchison Group Telecom Holdings, which owns Three UK.

The press release refers to an announcement made last summer, addressing the UK’s two network sharing deals and suggesting that VMO2 will be an indirect beneficiary of this deal. So it seems everyone is happy today except BTEE, which will no longer be the country’s biggest MNO once this deal completes some time in the first half of next year.

The pledge to spend £11 billion over the next 8 years is what much of the business press is focusing on but what form that will take and how it will be enforced by both the CMA and Ofcom remains to be seen. What qualifies as ‘investment’? Presumably the merged company’s accountants will be seeking to classify as much as possible in that way to ensure they deliver on that pledge.

“It’s crucial this merger doesn’t harm competition, which is why we’ve spent time considering how it could impact the telecoms market,” said Stuart McIntosh, chair of the group leading the CMA investigation. “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.”

Vodafone will own 51% of the new company, with an option to buy out CK Hutchison after three years, which is when the remedial price caps expire. It seems reasonable to assume Vodafone will exercise that option and that the combined company will be called ‘Vodafone’. With the presumed exception of BTEE and maybe some MVNOs, industry reaction to the news has been supportive.

"Be in no doubt – while largely a formality at this point, today’s final report, and green lighting of the merger, sets the wheels in motion for a transformation of the UK’s mobile market, and ultimately the experience for consumers,” said Matthew Howett of Assembly Research. “We expect positive implications overall, not only for investment in, and the quality of, networks (including standalone 5G), but also for the wholesale customers and consumers and businesses that rely on them.”

“The CMA’s decision to approve the merger is the right one and largely strikes a good balance between nurturing competition and encouraging investment,” said Kester Mann of CCS Insight. “It should pave the way for more-efficient investments to bring about much-needed improvements to mobile services in the UK.

“With approval secure, the hard work really begins. The merged company’s biggest task will be to combine two established mobile networks with a complex assortment of network suppliers. CEO Max Taylor will also face difficult decisions in areas such as brand, retail, jobs, and market positioning. Rivals should be ready to pounce if any stage of the integration goes awry.”

“The CMA has done a thorough job of highly scrutinising this deal, it’s now up to both parties to deliver on their promises,” said Paolo Pescatore of PP Foresight. “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 more consolidated market could provide opportunities for better networks and services, but also presents challenges in maintaining competitive pricing and ensuring regulatory commitments are met," said Dario Talmesio of Omdia. "The ultimate impact of these developments on consumers, businesses, and industry players remains to be seen, but one thing is clear: the UK telecom sector is entering a new, more competitive phase that could shape the future of connectivity in the UK."

"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,” said Simon Frumkin, CEO of connectivity infrastructure-as-a-service provider Freshwave. “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… 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."

“This merger brings the best of both worlds to the table—Vodafone’s strength in B2B solutions and Three’s agility in mobile infrastructure,” said Keith McAleese, Head of TMT at NTT DATA UK&I. “For the UK’s business and consumers, this is a big win. Vodafone’s capabilities, from digital channels to white-label product development, will fast-track new services and capabilities to Three’s customer base, addressing the rising demand for rapid, data-intensive applications.

“The CMA’s requirements for fair MVNO terms are also crucial. These provisions create space for innovation, allowing MVNOs to serve niche enterprise markets on a secure, scalable network without losing commercial flexibility. The merger sets a new standard for enterprise connectivity and marks a milestone in positioning the UK as a leader in digital infrastructure.”

For all this industry high-fiving, it’s far from guaranteed that this merger will be a success. It may eventually enrich Vodafone shareholders without delivering the broader benefits most people seem to think it will. And all M&A is a high-risk business, with some such moves taking years to even fully integrate, let alone reach their optimal state.

But we share the feeling that this merger/eventual acquisition will probably be a net positive. By giving Ofcom yet more power the promised investment level should be maintained which, in turn, will force the other two UK telco giants to at least keep up. It also removes structural uncertainty from a sector that is now as consolidated as it will ever be. We look forward to receiving an invite to the launch party next year.