Price freezes and network investment could see Voda-Three merger over the line – CMA

The regulator has proposed that Vodafone and Three's pledge to spend £11 billion to upgrade and extend their integrated network over the next eight years becomes a legally-binding commitment enforceable by the CMA and telco watchdog Ofcom.

The CMA also wants the combined company to impose a three-year price freeze on certain mobile tariffs and data plans – including those available on Voda and Three's respective sub-brands. It has also proposed a commitment to pre-agreed prices and contract terms for MVNOs.

The operators said in a brief statement that they need to study the proposal closely, but they believe it "provides a path to final clearance" of their merger.

"An appropriate balance appears to have been struck by ensuring that the significant benefits of the merged company's investments can be realised in full and at pace to the benefit of the country and its citizens, while addressing the CMA's stated concerns," the telcos said.

It is little wonder Voda and Three are feeling positive, given the remedies are broadly in line with what they offered in a bid to get their mega-deal approved.

It was the operators themselves that first suggested Ofcom be tasked with keeping them honest when it comes to their network investment plan.

In late September, they also offered to freeze certain prices – albeit for two years rather than three – and suggested launching a reference offer for MVNOs to encourage take-up of their additional mobile capacity.

They also agreed in principle to divest spectrum to Virgin Media O2 (VMO2), and the CMA said it has taken this into consideration as part of its assessment process.

A Virgin Media O2 spokesperson said of today's news: “We maintain our view that there’s a clear rationale for this consolidation and that our network sharing agreement with Vodafone ensures that mobile investment is maximised, and competition, coverage and performance is sustained and enhanced. We’ll continue to engage with the CMA as we have done throughout this process.”

The CMA has been conducting an in-depth phase 2 investigation into the proposed merger, after its preliminary investigation found that it could leave consumers and businesses worse off.

A final yes-or-no decision is due on 7 December. Until then, Voda, Three and the CMA will hammer out the finer points of the remedy package.

It is hard to overstate the significance of this development, given UK authorities' historic reticence regarding in-market consolidation from four to three players.

The last time it was attempted was in 2015, when Telefónica tried to offload O2 to Three parent Hutchison. Back then, the UK was still in the EU, and the European Commission ultimately blocked the tie-up.

Today, with the UK no longer required to sing from the same hymn sheet as Brussels, its tone regarding in-market consolidation has softened somewhat. Indeed, Ofcom stated in 2022 that it would examine mergers on a case-by-case basis rather than zealously maintain a specific number of players.

Nonetheless, Voda and Three – cognisant of the ramifications their merger could have for millions of consumers and businesses – have been working overtime to promote its supposed benefits to society and the economy.

Assembly Founder and CEO Matthew Howett said of the news: “Today saw a significant update from the CMA regarding the Vodafone/Three merger in the UK. It seems convinced that the remedies offered will address any competition concerns they had – while also still allowing for the benefits of the merger to play out.

“This is an unusual step for the CMA – the paper is usually just sent to the merging parties. I suspect we’re seeing it in recognition of how big the deal is and its importance for the UK. No doubt the CMA is also keen to show the significant commitments they’ve managed to get from the merging parties to address their earlier (substantial) concerns. Legally binding investment commitments, price safeguards for consumers and wholesale protections for MVNOs are all things to have emerged from this process. So while we wait to see the detail in the remedies working paper, based on this press release, in our view the merger edges closer to completion with the next milestone being approval in December.”

Kester Mann, director of consumer and connectivity at CCS noted: "Approval would mark one of the most significant developments in the history of UK mobile, heralding the arrival of a new market leader with over 29 million customers."

He noted that the CMA's willingness to work with Voda and Three is likely to ruffle a few feathers at incumbent BT – which took over the country's biggest mobile player EE back in 2015 – and MVNO Sky, which will see a reduction in the number of wholesale networks.

"BT and Sky Mobile have sternly opposed the deal and are likely to vociferously attempt one final time to have it blocked before the CMA's final deadline in less than five weeks," Mann predicted.

However, given how late in the day this development is, and with the stars seemingly aligning for Vodafone and Three, the UK does indeed look set to become a three-player mobile market.