UK approves Vodafone-Three $19 billion merger, gives conditions for final deal

The United Kingdom’s (UK) government has approved the $19 billion merger of Vodafone and Hutchison’s Three UK. The deal, described as the country’s biggest of such in the mobile industry, has been projected to drive huge competition in the long run.

“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,” The Competition and Markets Authority (CMA) of the country said in a statement.

CMA had earlier said dropped its objection that a move for a merger of four to three networks could push up prices. According to its regulatory requirements, a merger is only approved when it involves more than two companies.

The four-to-three mergers that were allowed required the creation of challenger brands to keep prices low. However, CMA’s approval on Thursday marks the first time a major European market has allowed such a deal without structural remedies.

In a statement reacting to the deal approval, the Vodafone Group CEO, Margherita Della Valle said that the approval will create a new force in the U.K. telecom market.

“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,” she said in a statement. 

Operators across Europe have argued that regulators’ focus on low prices has hurt investment. They argued that this has seen the digital infrastructure trailing the United States and Asia, hampering the continent’s economies.

Experts claimed that the merger could have been allowed as part of the process to boost the UK’s mobile speed. For a while, the country has recorded slow mobile connectivity in Europe. The new labour government has told regulators to favour any deal or policy that would increase investment and lift economic growth.

Following the approval, CMA has stressed that the three stronger operators – Vodafone-Three, current market leader BT Group, and Virgin Media O2 (VM O2) would provide enough competition to deliver a better service for citizens. 

As part of their dedication to strengthening the country’s network, Vodafone and Three, which represent the UK’s third and fourth operators respectively, committed to spending 11 billion pounds ($14 billion) on a 5G network. This is set to serve 50 million customers, including the subscribers of Vodafone’s network-sharing partner VM O2.

Vodafone-Three merger – UK’s biggest mobile operator

Earlier in June, Vodafone Group and Hutchison Group announced the plan to merge their U.K. carriers. The companies pointed out that there is “no cash consideration to be paid” in this merger and it would also include debt from both businesses.

The merger seems to be more vital for Three U.K. following claims by the CEO, Robert Finnegan in March that the company’s network would be “unsustainable” without a merger with Vodafone. 

Following the announcement and submission for a merge, the CMA kicked off its initial “phase 1” probe before progressing to a full in-depth investigation in June, after conducting a market analysis and collating industry feedback.

In September, the CMA delivered its provisional findings, concluding that the merger could lead to higher prices for consumers, diminished services, and reduced investment in U.K. mobile networks. Even though there were concerns about the deal, the authorities instead suggested potential remedies to appease its concerns.

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

As part of the condition for a final merger, CMA said both companies must sign binding commitments to “invest billions” to launch a combined 5G network across the whole U.K. The antitrust authority CMA also highlighted that the new combined entity would have to cap “certain mobile tariffs” for three years, while mobile virtual network operators (MVNOs) would also continue to have pre-set contractual terms for the same period.

“The CMA’s decision is not a surprise. It has signalled for some time that it was receptive to approving the merger subject to appropriate concessions from the parties,” said Alex Haffner, a competition partner at law firm Fladgate.

The merger is set to create the UK’s biggest mobile operator after their investment promises outweighed concerns about higher customer bills. It would also give both companies much greater economies of scale when it comes to building out costly networks for 5G and beyond.

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