Vodafone and Three face tough probe over merger
Vodafone and Three UK are expected to face a tough investigation into their proposed merger to create the country’s biggest mobile phone operator.
The third and fourth largest firms in the sector are planning to combine their UK-based operations into a £15 billion company with 27 million customers.
They intend to invest £11bn in Britain over 10 years to create what they described as “one of Europe’s most advanced standalone 5G networks”.
Three-owner CK Hutchison will own 49% and Vodafone 51% of the combined group, which will be led by current Vodafone UK boss Ahmed Essam.
The new company will leapfrog Virgin Media O2 which has about 24 million customers, EE, which is owned by BT Group, has 20 million mobile users.
Regulators will look at whether it will impact on customer bills.
The Competition and Markets Authority said: “Both Vodafone and Three are key players in the UK communications market – with millions of consumers and many businesses relying on their services – so it’s right that the CMA reviews the impact this deal could have on competition.”
Vodafone and Three claimed that from day one customers “will enjoy a better network experience with greater coverage and reliability at no extra cost”.
CK Hutchison co-managing director Canning Fok said Three UK and Vodafone UK currently lacked the scale to make a return on their investment.
“Together, we will have the scale needed to deliver a best-in-class 5G network for the UK, transforming mobile services for our customers and opening up new opportunities for businesses across the length and breadth of the UK,” he said.
Karen Egan, head of mobile at Enders Analysis, noted that it will not be a simple rubber stamping merger.
She said the “CMA’s hawkish approach to mergers of late is not encouraging”, after the competition watchdog blocked UK approval for Microsoft’s proposed $69bn takeover of Call of Duty-owner Activision Blizzard.
Analyst Dan Ridsdale at Edison said the Vodafone statement gives a clear indication that it is already concerned about the competition issue, with a statement that “reads like an overt pitch to convince a broader set of interest groups”.
He added: “Management will have a good level of insight into the opinions of key investors regarding the deal, whereas regulators play their cards much closer to their chest.”
In 2016, EU regulators blocked a takeover of O2 by the owner of Three, saying it would reduce customer choice and raise prices. This was after the CMA had also expressed “serious concerns” about that deal.
Vodafone is in the process of cutting 11,000 jobs over three years, which is equal to around a tenth of its workforce.
In addition, Vodafone and Three hinted at extra job cuts within five years of the deal going through due to the consolidation of IT, marketing, sales, distribution and logistics operations.
Alex Tofts, broadband commentator at Broadband Genie, said: “A deal between Three and Vodafone would create a power couple and a real force to be reckoned with in the mobiles market.
“Vodafone has historically been the more premium provider, while Three has focused on delivering value for money, so it will be interesting to see how this dynamic shifts if the merger goes ahead.
“If it does, this new telecoms titan would still be at a disadvantage with some competitors, as it will struggle to make gains away from its mobile services.
“Unlike previous partnerships between BT and EE, and Virgin Media O2, this wouldn’t be able to offer anything new in terms of broadband or TV packages, as it doesn’t own any fixed-line infrastructure.
“Three has invested heavily in its mobile broadband but as the adoption of 5G tech is still low, and coverage is a major issue for many households, this partnership would still rely on other providers for its most popular broadband deals.
“Thanks to mergers we are seeing the big players increase their domination of the UK’s mobile and broadband market. While this may seem like bad news for consumer choice, it does give smaller independent providers the ability to set themselves apart from these juggernauts and move quickly to win new customers.
“There is still a way to go on getting this merger over the line, and as Ofcom and the Competition and Markets Authority tend to be wary of mobile-only mergers, we may still see these efforts come to nothing.”
The Unite union said the deal was “reckless”, and that it would “hike people’s bills and mean job losses for Vodafone and Three workers”.
The merger between the two companies has been long-expected after talks on the deal started in October last year.