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Vodafone-Three merger faces formal competition investigation

Vodafone said the merger will ‘significantly enhance competition’ (Dominic Lipinski/PA)
Vodafone said the merger will ‘significantly enhance competition’ (Dominic Lipinski/PA)

The proposed merger between mobile networks Vodafone and Three is to be formally investigated by the UK’s competition regulator.

The Competition and Markets Authority (CMA) said it had started the formal investigation to examine whether it could lead to a substantial lessening of competition for mobile consumers by merging the two firms into a single network provider.

The CMA said if it found reason for concern during its initial examination, it could launch a more in-depth investigation into the merger.

The £15 billion merger was first announced last summer and would create the UK’s largest mobile phone network.

It was expected to draw regulator scrutiny, particularly in terms of competition, because it would reduce the major mobile network providers in the UK from four to three.

Trade unions have also criticised the merger over concerns about possible job cuts.

“This deal would bring together two of the major players in the UK telecommunications market, which is critical to millions of everyday customers, businesses and the wider economy,” CMA chief executive Sarah Cardell said.

“The CMA will assess how this tie-up between rival networks could impact competition before deciding next steps.

“We now have 40 working days to complete this formal phase one investigation, before publishing our findings and any next steps.”

In response to the CMA’s announcement, Vodafone UK chief executive Ahmed Essam said: “We have formally submitted our merger notice to the CMA, having worked with them closely through the pre-notification process. We look forward to continuing the constructive conversations now that the formal process has begun.

“We strongly believe that the proposed merger of Vodafone and Three will significantly enhance competition by creating a combined business with more resources to invest in infrastructure to better compete with the two larger converged players.

“Our commitment to invest £11 billion will build capacity to meet the exponential growth in demand for data and accelerate the rollout of advanced 5G across the UK, delivering benefits to consumers and businesses throughout the nation.

Three UK chief executive Robert Finnegan said: “By combining networks, Three UK and Vodafone UK will unlock £11 billion of investment that will help the UK close the 5G gap with leading European countries and realise its ambitions to be a front-runner in digital connectivity.

Oliver Dowden
Oliver Dowden said there are national security risks in a UAE firm being the major shareholder in Vodafone (Stefan Rousseau/PA)

“Thanks to this transaction, 95% of the population and every school and hospital will be covered by standalone 5G by the end of the decade.

“Joining forces will also yield more immediate benefits. From day one, our customers will enjoy faster, more reliable coverage over more of the country – and without paying a penny extra.

“We are confident that this transaction will deliver significant benefits to our customers, the country and competition, and we look forward to working closely with the CMA as they review our notification.”

The launch of the investigation comes after Deputy Prime Minister Oliver Dowden used new powers to declare there are national security risks in a UAE firm being the major shareholder in Vodafone.

In the order published in Mr Dowden’s name on Wednesday, it says the relationship Emirates Telecommunications Group, which does business as Etisalat by e&, has with the British firm would “enable it materially to influence the policy of Vodafone”.

The senior Conservative ruled that, under powers granted by the National Security and Investment Act, he considered that e&’s stake in Vodafone could cause “a risk to national security” on issues of cybersecurity and in the operator’s role as a “strategic supplier of services to many parts” of government.

Abu Dhabi-listed e& has built up a stake of 14.6% in Vodafone, marking a deepening of a strategic tie-up that began in May 2022 when e& first invested in the FTSE 100 giant.

The British telephone firm announced in May that e& chief executive Hatem Dowidar would join the Vodafone board as a non-executive director.

Coming eight months after that move, Mr Dowden has now imposed conditions, including for Vodafone and e& to “meet certain requirements relating to Vodafone’s board composition” and to “establish a national security committee to oversee sensitive work that Vodafone and its group perform which has an impact on, or is in respect of the national security of the UK”.