CMA launches in-depth probe of Vodafone/Three deal

Following the preliminary Phase 1 probe, which concluded last month, the watchdog warned the tie-up could leave consumers and businesses paying higher prices for lower-quality services. It gave Voda and Three five working days to offer meaningful remedies to these concerns or face an in-depth probe.

"On 28 March 2024, the parties informed the CMA that they would not be offering any undertakings. The CMA has therefore decided to refer this merger for a Phase 2 investigation," the CMA said in a brief stock exchange filing.

This isn't a surprise. The reaction to the outcome of the Phase 1 probe from Vodafone and Three – as well as the analyst community – suggested that an in-depth investigation was a foregone conclusion.

Vodafone and Three said in a joint statement this was "an expected next step" in the process and is within the anticipated timeframe for completing their merger.

They reiterated yet again the supposed benefits the tie-up offers customers in terms of network quality; their plan to spend £11 billion on infrastructure; and their pledge to maintain the same pricing strategy if the merger goes ahead.

"We will review the potential concerns raised by the CMA and look forward to continuing to engage constructively with them throughout the review," Voda and Three said.

Based on merger probes of recent past – both in the UK and on the other side of the Channel – industry observers can probably take a good stab at where this is all leading.

Competition-protecting remedies like divesting spectrum to a new entrant, or favourable terms for MVNOs, might ease concerns about the removal of Three as a challenger brand. However, maintaining the status quo of four MNOs might undermine the combined entity's ability to invest at the required scale.

The CMA has until 18 September to conduct its Phase 2 probe, so there is plenty of time to dust off these well-worn arguments.

There are a couple of factors in play that might have a bearing on the merger.

Ofcom stated two years ago that its primary concern when it comes to in-market consolidation is the effectiveness of competition that can be expected after a merger, not the number of MNOs.

This 'no-magic-number-of-operators' stance has also been adopted by the EU, and offers a faint glimmer of hope for Vodafone and Three.

Then there is also a potential wild card – one that falls outside the scope of the CMA investigation – that might tip the balance against Voda/Three.

Anti-China sentiment in government is still running high – just look at the cyberattack accusations levelled at Beijing by the US and UK last week.

The prospect of Hong Kong-based Three parent CK Hutchison having a stake in a company like Vodafone won't sit well in some quarters. Three already serves many public sector clients, but facts like these tend to be overlooked when there is a geopolitical narrative at stake.

For all the publicity the CMA probe is receiving, the national security review quietly taking place in parallel might really be the one to watch.