Vodafone and CK Hutchison Holdings Limited have announced an agreement for the merger of Vodafone and Three in the UK. While the previous attempt to consolidate to a 3-player market in the UK failed, the climate this time around feels less hostile and presents the best chance of getting a deal through.
James Robinson, Senior Analyst at Assembly comments:
“While the CMA has remained tight-lipped, DSIT and Ofcom have publicly expressed their openness to consolidation, recognising the challenging financial state of both operators, the investment required for 5G, the need for more resilient networks and the emerging competitive pressure from big tech.
“With the Government’s recent Wireless Infrastructure Strategy, the merger announcement, with its commitment to investment and jobs, comes at an opportune moment. Together, Three and Vodafone would be better equipped to deliver ultrafast, reliable and secure mobile connectivity throughout the UK – the exact thing the Government’s pro-investment strategy wants to see.
“The CMA will be the decision-maker on the deal. Though the parties have made a strong case, the competition authority’s review will soon reveal how well their arguments have landed. Its assessment is likely to focus on spectrum holdings, networking sharing agreements, access for MVNOs and retail prices for consumers.
“A combined Three/Vodafone will face calls from rivals to give up some of its enviable 5G spectrum holding. As divestment is a fairly standard mobile merger remedy, that shouldn’t be a barrier to getting the deal through. Neither should network sharing, with competition issues relating to existing agreements easier to overcome than in the past.
“Three and Vodafone might be required to reserve a proportion of network capacity for MVNOs. This is something the parties should expect to have to offer – but it’s a far more palatable option than a carve-out of infrastructure to facilitate a new entrant, which would only exacerbate the problems the merger is trying to solve.
“Given the cost of living crisis, the potential for higher consumer bills that a reduction in the number of competitors could bring will be a particularly contentious issue. The CMA will be keen to hedge the risk and could demand legally-binding commitments not to raise prices for several years (which only increases the need for the merger to generate efficiencies).
“Hostility from those seeking to sever ties with China is a political consideration, rather than an economic one, and so would sit with the Government to decide whether to intervene using its powers under the National Security and Investment Act.”
– Ends –
James Robinson is a Senior Analyst at Assembly. Before joining Assembly, James was a competition policy manager at Ofcom where he was project manager for the team advising the CMA and EC on the BT/EE and O2/Three merger reviews.
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