The competition in the U.K.’s telecommunications market is set to undergo a major transformation with the proposed merger between Vodafone and Three UK. The country’s Competition and Markets Authority (CMA) has officially launched a formal investigation into the £15 billion ($19 billion) joint venture, which would decrease the number of main infrastructure-owning mobile networks from four to three.
“This deal would bring together two of the major players in the U.K. telecommunications market, which is critical to millions of everyday customers, businesses and the wider economy,” CMA chief executive Sarah Cardell stated. “The CMA will assess how this tie-up between rival networks could impact competition before deciding next steps.”
This news may not come as a surprise, as Vodafone and Three had already given themselves until the end of 2024 for the deal to be finalized when they first announced their plans back in June. However, it marks the beginning of a “phase 1” investigation by the CMA, which will evaluate if the merger would cause a “substantial lessening of competition.” This process involves gathering data from the parties involved, competitors, customers, and other stakeholders over the next 40 days.
If the CMA deems it necessary, the investigation may move to a more in-depth “phase 2” stage that lasts another six months. This is why Vodafone and Three have allowed a long time frame for the deal to be approved.
“It was certain that the CMA would open a formal investigation — it is also certain to proceed to a full Phase 2 investigation,” Tom Smith, a former CMA legal director and partner at London-based law firm Geradin Partners, explained. “This means we should expect the CMA’s final decision in the Autumn.”
This is not the first merger attempt for Three, as its parent company Hutchison previously tried to acquire O2 in a £10.25 billion deal, but this was blocked by EU regulators. The deal resurfaced in 2022 when a European court suggested overturning the original ruling, but that merger is considered dead by industry experts.
Aside from competition concerns, there is also a national security aspect to this deal. The U.K. Cabinet Office has expressed concern over the 14.6% stake that UAE telecoms group called e& holds in Vodafone, citing potential risks to the country’s security. As for Three, it is owned by CK Hutchison Holdings, a Hong Kong-based conglomerate affected by China’s national security law.
“It has been clear for some time that the proposed merger will also have an additional regulatory dimension under the National Security and Investment Act given Three’s links to China via its Hong Kong ownership — and the impact of China’s national security law in Hong Kong,” Alex Haffner, a competition partner at U.K. law firm Fladgate, noted. “This allied to the UAE company e&’s recent 14.6% stake in Vodafone, which has already undergone a security review by UK government under the Act, means that the merging parties now face high level governmental as well as regulator scrutiny of the deal.”
In order for the merger to be approved, Vodafone and Three will have to convince the CMA that the benefits of the merger outweigh the reduction in competition. Vodafone UK CEO Ahmed Essam believes that the combined resources of the two companies will allow for better infrastructure investment and competition with the two larger converged networks, ultimately benefitting consumers and businesses across the U.K. Vodafone has committed to investing £11 billion to support the transition to 5G technology.
