Vodafone and Three UK Merger Faces CMA Scrutiny Over Competition Concerns

Vodafone U.K., a subsidiary of Vodafone Group Plc VOD, and Three U.K., owned by CK Hutchison Holdings Limited, announced last year a joint venture that would consolidate their 27 million customers under one network provider. 

This move prompted the Competition and Markets Authority (CMA) to initiate a Phase 1 investigation in January to determine the potential for a “substantial lessening of competition” that could impact U.K. consumers and businesses. 

Last June, Vodafone Group struck a merger agreement with CK Hutchison Group Telecom Holdings Limited (CKHGT), a subsidiary of CK Hutchison Holdings Ltd, to combine their U.K. telecommunications operations. Following the merger of Vodafone U.K. and Three U.K., Vodafone will hold a 51% stake in the newly formed entity, while CKHGT will own the other 49%. 

According to the agreement, Vodafone U.K. will contribute £4.3 billion, and Three U.K. will add £1.7 billion to secure its shares in the merged company.

The CMA’s concerns stem from the merger’s potential to lead to higher prices and reduced service quality for mobile customers, as it would combine two of the four leading mobile network operators in the U.K.

Throughout its investigation, the CMA identified that both Vodafone U.K. and Three UK are significant competitors in the market, with investments in network enhancements and 5G rollout, noting that Three U.K. is typically the most affordable option. 

The authority expressed worry that the merger could diminish competitive pressures, which are essential for keeping prices low and driving service improvements, including network quality investments. 

Moreover, the deal could challenge smaller mobile ‘virtual’ network operators like Sky Mobile, Lebara, and Lyca Mobile in securing favorable terms for their customers due to fewer operators capable of hosting these networks.

While Vodafone UK and Three UK argue that the merger would benefit customers and accelerate new technology deployments, the CMA needs substantial evidence supporting these claims. 

Given its initial findings, the CMA has signaled the possibility of escalating to a Phase 2 investigation unless Vodafone U.K. and Three U.K. can promptly propose satisfactory solutions to these competitive concerns. The combined company will likely have an enterprise value of around £15 billion.

U.S. Big Tech companies including Meta Platforms Inc META, Apple Inc AAPL, Amazon.Com Inc AMZN, Google parent Alphabet Inc GOOG GOOGL attracted global regulatory action for thwarting competition by exercising their undue influence. 

Nvidia Corp’s NVDA plan to scoop British chip designer Arm Holdings Plc ARM succumbed to regulatory opposition who feared the union would make them a monopoly powerhouse.

Vodafone’s stock has lost over 22% in the last 12 months. Investors can gain exposure to the stock via First Trust NASDAQ Technology Dividend Index Fund TDIV and Pacer Global Cash Cows Dividend ETF VWI.

Price Action: VOD shares are trading higher by 1.63% at $8.74 premarket on the last check Friday.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

Photo by Kerstin Riemer from Pixabay