How the Vodafone-Three Merger Will Shake-Up the Telecom Sector
Introduction
The future of the Vodafone-Three merger is no longer uncertain. Following the CMA’s approval, the two powerhouses will combine in a £16.5 billion deal[1]. The 51% majority stake will be assumed by Vodafone, and the remaining 49% to Three[2]. The merger will leave only three to compete in the telecom sector: Vodafone-Three, BT and Virgin Media O2[3]. While widespread criticism has certainly been vocalised, a large number of stakeholders have endorsed the deal. The question remains: is the merger a win or a setback? It depends on who is asked.
The stakeholder perspectives
The Directors
The drivers of the deal have broadcasted the wide-reaching benefits of the merger. With an £11 billion investment, they plan to create an entirely new network within the next 10 years[4]. The resultant access will leave no consumer unreachable. They even go as far to propose that the merger will narrow the digital divide[5]. Indeed, there will inevitably be improved access and connectivity for individuals and businesses of various scales. However, the suggestion that the merger will be the solution to such a deep-rooted divide issue is perhaps too optimistic.
The CMA
With the power to block a deal, the CMA is a key player in all mergers and acquisitions (M&A) within the UK. Upon the approval of the deal, the CMA imposed multiple legally binding conditions. The behavioural remedies include: the development of a joint network over the next 8 years, a guarantee to cap prices of some mobile data plans and the offering of preset prices for wholesale services for 3 years[6]. The conditions have been gladly accepted by Vodafone and Three – perhaps an indication of their fortune in avoiding the stricter alternative of structural remedies.
The Government
The merger aligns with Labour’s goal of achieving nationwide access to 5G by 2030[7], since Vodafone-Three’s network is intended to reach ‘99% of people’[8] across the UK. Starmer has also emphasised the importance of promoting innovation across various industries[9]. The publication of the ‘Industrial Growth Strategy Green Paper’ demonstrates the pressure on regulators to prioritise investment in the UK economy[10]. The merger will likely cause a surge in investment, resulting in increased growth and stimulation within the telecom sector.
The Competitors
Throughout the merger process, one theme has repeatedly emerged: the competition’s disapproval. BT, for example, published a response that focused on the short-comings of the CMA in providing sufficient remedies and limitations. They strongly criticised the CMA’s inadequate response to the asymmetry in the low-band spectrum[11]. Further, they argued that the burden would fall on the consumers themselves[12]. Sky accompanied BT in critiquing the short-term nature of the CMA’s remedies[13]. The fact that there is a 3-year duration to the wholesale services remedy brings about the question - what happens once the period ends? Do consumers go unprotected?
O2 raises additional concerns about the quality of their own network once the merger takes place. They raise apprehension over network sharing, and their future inability to provide consumers with high quality connections following the deal[14].
The Consumers
Consumers will likely suffer in two regards: network connectivity and costs. It has been suggested that they could bear an additional £300 in mobile costs post-merger[15]. With only three rivals left, they would also have less choice. On the other hand, they will likely experience improved access and connectivity. However, this will certainly not occur in the near future – only in another 10 years one might start to experience the benefits.
The impact on M&A across the UK
The CMA’s approval indicates a changing attitude. The deal marks a shift in the CMA’s method of control: from the typical structural remedies, to the softer behavioural remedies. The more flexible perspective aligns with the Labour government’s aim to avoid pursuing an ‘overly interventionist approach’ within the telecom sector[16]. Hence, the deal will likely release mobile service providers from being stuck in a ‘value trap’[17] by antitrust regulators.
Many predict that the transition implies a more lenient approach to approving M&A deals[18]. Considering the CMA’s previous denial of a Vodafone-O2 merger[19], it is certainly a sign of change. In the future, a major growth in M&A across the UK will likely be observed.
Conclusion
Despite the vocalised complaints, the deal is going ahead. Within the first half of 2025, Vodafone and Three will officially merge. However, whether the organisation fulfils its network and connectivity aspirations remains to be seen.
[1] Y. Mersinoglu, ‘How the £16.5bn Vodafone-Three UK merger will reshape Britain’s mobile landscape’ The Financial Times (5 December 2024).
[2] ‘Vodafone and Three given approval to merge’ The Guardian (5 December 2024).
[3] Y. Mersinoglu, ‘How the £16.5bn Vodafone-Three UK merger will reshape Britain’s mobile landscape’ The Financial Times (5 December 2024).
[4] J. Partridge and M. Sweney, ‘What could UK merger between Vodafone and Three mean for customers?’ The Guardian (5 November 2024).
[5] ‘CMA approves merger of Vodafone and Three in the UK’ <https://www.vodafone.com/news/corporate-and-financial/vodafone-and-three-welcome-cma-decision> accessed 26 January 2025.
[6] Y. Mersinoglu, ‘How the £16.5bn Vodafone-Three UK merger will reshape Britain’s mobile landscape’ The Financial Times (5 December 2024).
[7] J. Partridge and M. Sweney, ‘What could UK merger between Vodafone and Three mean for customers?’ The Guardian (5 November 2024).
[8] ‘CMA approves merger of Vodafone and Three in the UK’ <https://www.vodafone.com/news/corporate-and-financial/vodafone-and-three-welcome-cma-decision> accessed 26 January 2025.
[9] ‘Vodafone/Three JV cleared in UK with behavioural remedies: key takeaways and implications for future deals’ Herbert Smith Freehills (11 December 2024).
[10] ibid.
[11] Vodafone/CK Hutchison joint venture merger inquiry, BT’s response to the CMA’s Provisional Findings (5 November 2024).
[12] ibid.
[13] Vodafone/Hutchison 3G, Submission to the CMA responding to the remedies working paper on the proposed merger of Vodafone and Hutchison 3G (12 November 2024).
[14] J. Warrington, ‘Bid to build £15bn mobile titan would damage coverage upgrades, warns rival’ The Telegraph (26 February 2024).
[15] J. Partridge and M. Sweney, ‘What could UK merger between Vodafone and Three mean for customers?’ The Guardian (5 November 2024).
[16] ‘Vodafone/Three JV cleared in UK with behavioural remedies: key takeaways and implications for future deals’ Herbert Smith Freehills (11 December 2024).
[17] C. Palladino, ‘Why the broken telecoms sector could be upwardly mobile’ The Financial Times (12 December 2024).
[18] ‘Three is the magic number: CMA approves Vodafone/Three merger’ MacFarlanes (5 December 2024).
[19] J. Partridge and M. Sweney, ‘What could UK merger between Vodafone and Three mean for customers?’ The Guardian (5 November 2024).
