Vodafone and Three offer UK regulator new concessions on £16.5bn merger

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Vodafone and CK Hutchison’s Three UK have offered to limit price increases on some phone tariffs as they try to win approval for their £16.5bn domestic merger from the UK competition watchdog.

The companies reiterated on Monday that they disagreed with the Competition and Markets Authority’s provisional findings that the transaction would increase prices for consumers.

They also pledged to provide new pricing for wholesale customers to access their network, but it is unclear whether this will be enough to clear obstacles to a deal that it is expected would create the UK’s largest mobile operator.

The regulator earlier this month announced the initial findings of an in-depth probe into the deal, which was first announced in 2023, and demanded changes to protect customers. It is due to give its final decision on whether the tie-up can proceed by December 7.

The companies’ proposals on Monday included maintaining tariffs at £10 or below for “value-focused” customers on Three UK’s Sim-only Smarty brand, social tariffs and preserving measures to protect registered vulnerable customers for two years.

When the deal was announced, Vodafone and Three UK said there would be no change to their pricing strategies and social tariffs would continue to be offered. The latest commitments appear to be an attempt to allay the regulator’s lingering concerns.

Paolo Pescatore, founder and telecoms analyst at PP Foresight, said it “remains to be seen if the [the companies have] done enough on pricing to ease the CMA’s concerns”, which “could be a sticking point that makes or breaks it”.

Vodafone and Three UK said the merged company would also provide an offer for three years that encouraged mobile virtual network operators with 2.5mn or fewer customers to access its network on pre-agreed terms.

Matthew Howett, founder and chief executive of Assembly Research, said the companies’ willingness to address the regulator’s concerns, even if they did not regard them as substantial, showed that “they’re prepared to navigate the path the CMA has drawn to see the merger approved”. 

The companies have already committed to investing £11bn in their network and for the communications regulator Ofcom to monitor and enforce what they described as a “once-in-a-generation opportunity to transform UK digital infrastructure”.

They also agreed to a sale of spectrum to Virgin Media O2 upon approval of the merger as part of its new long-term network sharing deal with Vodafone UK announced in July.

Vodafone and Three UK said they “strongly believe the merger is pro-competitive” and “remain confident that we can work with [the CMA] to secure approval”.

The regulator said this month its “phase 2 investigation” into the merger had “provisionally concluded that the merger would lead to price increases for tens of millions of mobile customers, or see customers get a reduced service, such as smaller data packages in their contracts”.

The CMA earlier this year opened a probe into the deal, which would reduce the number of network operators from four to three after an initial review found the companies had not provided enough evidence that the tie-up would benefit investment and competition.  

Tom Smith, a competition lawyer at Geradin Partners and a former CMA legal director, said: “There is still a chance that the deal will simply be blocked at the end of it, but both sides seem very open to this unprecedented remedy package.”

Additional reporting by Suzi Ring