Yahoo Finance ‘Lessen competition and deter investment’: BT lashes out at Vodafone-Three UK deal
Last June, Vodafone chief executive Margherita Della Valle announced a proposed tie-up of the company’s UK operations with Three UK, a deal she said would be “great for customers, great for the country and great for competition.”
But not everyone agrees with Della Valle and, exactly a year on from that moment, the £15bn merger is still waiting for the Competition and Markets Authority (CMA) to cast the final verdict.
In March this year the watchdog said the proposed tie-up raises concerns for the industry and consumers. It referred the deal to a detailed phase two investigation, a process now expected to last until 12 October at the earliest.
The case against the Vodafone merger
On Thursday, the CMA published 10 responses to an issues statement it had released in May setting out the scope of its inquiry.
Among the letters was a formidable document from telecoms giant BT mounting a 40-page challenge to the deal, which it believes “raises serious competition concerns”.
Vodafone and Three’s rival said the proposed terms will give the merged company a “disproportionate share of capacity and spectrum, unprecedented in UK and Western European mobile markets, which will substantially lessen competition and deter investment.”
It echoes the CMA’s initial findings that the merger poses serious competition concerns, likely leading to higher prices for customers, poorer network quality and fewer incentives to invest.
Unite the Union also welcomed the regulator’s phase two inquiry and said the deal “must be blocked”. It repeated its strong objections that the deal would result in job losses, higher prices, and “further profiteering, without delivering the promised investment”.
The union also raised additional concerns about national security and anti-union activities associated with Three UK’s owner, CK Hutchinson. Vodafone and Three have dismissed these allegations, but the opposition adds to the scrutiny surrounding the deal.
The case for the merger
Some of the responses to the CMA backed the merger. Swedish telecoms company Ericsson argued that it could create a more sustainable market structure, offer returns on digital infrastructure investments and attract more capital into the network.
“Consolidation is broadly seen as a pivotal measure towards helping operators to attain the necessary scale for expanding their future network infrastructure,” Ericsson explained.
One of Vodafone and Three’s key arguments is that their deal is essential for rolling out nationwide 5G standalone networks. Research by independent analytics firm Opensignal said the merger will create “substantially improved” 5G coverage, especially in underserved or remote areas.
The CMA appears to believe Vodafone and Three are capable of continuing their 5G network investments without merging. However, Three UK’s chief executive Robert Finnegan recently described the company’s financial performance as “clearly unsustainable” leading it to halt the geographic expansion of its 5G network.
Another anonymous company, which described itself as an alternative full fibre network provider, said the Vodafone and Three tie-up would lower wholesale prices and help it compete with the likes of EE, VM02 and Sky. This competition could ultimately benefit consumers through lower costs and improved service.
Regulatory temperature check
In February, the European Commission approved the merger of Spanish telcos Orange and MasMovil, but only after significant concessions, including divesting mobile spectrum to a rival to re-balance competition.
Analysts have suggested that Vodafone and Three might face similar conditions to placate the regulator, requiring them to find a third-party buyer for divested assets to keep their plans alive.
Vodafone’s chief Della Valle has said the deal should pass sans any concessions, though CCS Insight analyst Kester Mann suggested this is likely just part of a negotiation strategy.
She may also consider that such a requirement would undermine too much of what the deal aims to achieve, said Mann. Like many in the industry, he believes that the merger would drive greater investment and competition, “subject to a more even allocation of mobile spectrum”.
The position of the notoriously inscrutable CMA remains a big uncertainty. Mann said it is “hard to gauge” the watchdog’s temperature, especially after its initial resistance to the £54bn Microsoft-Activision Blizzard merger diverged from approvals by US and EU counterparts.
The CMA “was always going to be the toughest nut to crack,” he added. Another analyst recently told City A.M. the pendulum could swing in either direction, so contentious is the deal.
Realistically, the merger’s approval will likely hinge on the remedies stipulated by the CMA and the extent to which Vodafone and Three are willing to compromise.
