Approval from the CMA based on behavioural, rather than structural, remedies is unusual but sensible. It does, however, mean that much of the real work starts now
The transaction has been approved based on three behavioural commitments from the merging parties
On 5 December 2024, the UK’s Competition and Markets Authority (CMA) announced that it had cleared the Three/Vodafone merger, subject to legally binding commitments. It is expected to formally complete in H1 2025. In September of this year, the independent inquiry group leading the Phase 2 investigation identified two theories of harm, provisionally concluding that the deal could weaken retail competition (and raise prices for consumers) and reduce the merged entity’s incentive to compete in the wholesale market. However, the CMA – via a notice of possible remedies and then a remedies working paper – also outlined a pathway to approval for the transaction based on three behavioural commitments:
Investment commitment requiring the parties to deliver on their joint network plan;
Time-limited retail market protections for customers; and
Wholesale market remedies to support the prices or terms available to MVNOs.
Having considered the views of the parties and other stakeholders, the CMA’s final decision states that it is satisfied that the proposed network commitment (spanning eight years), supported by protections for both retail and wholesale customers (each lasting three years), would resolve its competition concerns. As such, the merger will be allowed to proceed so long as these commitments are fulfilled.
The majority of similar mobile mergers have been cleared, although sometimes with stricter, structural remedies
Since 2010, Europe has seen 10 attempts at in-market mobile consolidation, with seven approved with commitments (sometimes structural that can risk undermining the strategic rationale for the merger), one cleared unconditionally, one blocked and one abandoned – see Table 1. At the start of this process, the clearance of Three/Vodafone based on behavioural remedies would’ve appeared an unlikely route for the CMA to take, but it is one that over time has made sense. Approval with a structural remedy to create a new fourth mobile network operator would not have. Almost all stakeholders agreed on that – Italy’s expected reconsolidation hints at why. The CMA itself has become more comfortable with this merger as its robust investigation has gone on, utilising the time available to it and expert input from industry and (crucially) Ofcom to understand the likely impacts.
We expect the net effect to be positive for investment, networks and wholesale and retail customers
Following November’s remedies working paper, perhaps even after the notice of possible remedies in September, conditional approval of the merger appeared largely a formality come the final report. The CMA’s decision – and therefore the green light for the parties – sets the wheels in motion for a transformation of the UK’s mobile market, and ultimately the experience for consumers. There is still a chance that Sky may seek to challenge the decision; Sky has said that “weak remedies” and “procedural errors” by the CMA may force it and “possibly others” to consider an appeal. However, a successful appeal to the Competition Appeal Tribunal (CAT) would have to be hard-fought and would face a high bar. It is also unclear who those others might be. BT has raised concerns about both the impact of the merger (particularly with respect to spectrum and network sharing) and the commitments package, but seems focused on how it competes going forward rather than on seeking to undo a merger agreed in the past. We expect the combination to deliver positive outcomes 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 commitments package ensures ongoing responsibilities for the parties, the CMA and Ofcom
One thing that is clear is that the remedies package means that the CMA’s work in this case is not quite over. For Ofcom, it’s just getting started. It will be incumbent on a combined Three/Vodafone to invest and implement the requisite customer protections, while the CMA will have responsibility for monitoring implementation of protections relating to consumer tariffs and wholesale terms. Crucially, Ofcom will play a vital (and new) role with respect to oversight and enforcement of the headline investment commitment – a duty it seems emboldened to assume. Its monitoring will need to be carried out in an as ongoing and agile way as possible to ensure the merged entity is living up to expectations and to minimise any risk of circumvention or market distortions that some have warned about. In contrast, one issue yet to be clarified is what and how much spectrum the merged entity will sell to Virgin Media O2. An agreement for which, struck during Phase 2, will have helped allay the CMA’s concerns over spectrum imbalances between operators and is expected to boost the recipient's network quality and capacity. That said, details of the agreement may only come to light once updated information on spectrum holdings is made public by Ofcom (expected in April 2025).
