The UK’s Competition and Markets Authority is in the early stages of a formal investigation into the proposed merger of Vodafone UK (part of Vodafone Group) and Three UK (owned by CK Hutchison Holdings). These are two major providers of mobile telecommunications services in Britain, with millions of consumers and businesses relying on them to stay connected.
The CMA has already said the investigation will be focusing on how the deal will affect telecommunications competition in the UK, and recognises that the merger could have a direct impact on how mobile network services are priced, and the degree to which they will be invested in going forward. The CMA said it would also be consulting Ofcom, the UK telecommunications regulator.
The CMA has history in this area, having previously torpedoed Three’s attempt to take control of O2 in 2016. In that deal it was also supported by the European Commission, which foresaw wider implications.
Research house Third Bridge told us it has been consulting experts within the telecommunications sector, who say it is very likely the Vodafone-Three merger will be approved by the CMA. If the merger doesn’t proceed, the market might lose a key fourth operator, given that both the third and fourth operators are currently facing difficulties.
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The other major players in UK mobile telecommunications are EE (part of BT Group) and Virgin Media O2.
Revenue growth within mobile telecoms in the UK is expected to be stagnant or similar to the figures observed in 2023, remaining in the range of 3-5% over the next 2-3 years as the B2C customer base is only growing thanks to young adults taking out their first contracts.
Where would the new entity make money?
The primary avenues for significant growth for the merged entity are expected to be in B2B sectors such as private networks, edge computing, and IoT. “Our experts envision a potential growth of 10% in the medium to long term if the entity successfully masters these areas,” said Albie Amankona, an analyst with Third Bridge.
Telecoms experts told Third Bridge that they find it surprising that there’s still consideration for an £11 billion investment in the Vodafone-Three 5G rollout. They believe the merged entity could use synergies to achieve the same result with GBP 8bn.
The UK’s Unite trade union has warned that consumer mobile phone bills could rise by as much as £300 per year in the wake of the deal, and that there are also potential national security risks at play here. The CMA said it would be a matter for the UK government to determine the level of national security risk presented by the proposed merger. Vodafone UK has a number of important government contracts, including with the Ministry of Defence and the Ministry of Justice.
Unite said its research forecasts not only higher mobile phone prices for UK consumers but also widespread redundancies in the sector as a consequence for the merger.
Vodafone has been defending the deal, saying it currently has not plans to change its pricing strategy.
