UK regulator launches investigation into Vodafone-Three merger

The UK competition regulator has launched an investigation into the proposed merger of Vodafone and Three to create the UK’s largest mobile phone operator.

The Competition and Markets Authority (CMA) now has up to 40 days to examine the deal and decide if it warrants being subjected to a full, in-depth investigation on competition grounds.

“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,” said Sarah Cardell, the chief executive of the CMA.

In a separate move earlier this week, the government said the stake in Vodafone held by a United Arab Emirates-backed telecoms group posed a national security risk to the UK.

The Cabinet Office issued a notice late on Wednesday warning that the 14.6% stake held in Vodafone by Emirates Telecoms, which is also known as e&, amounted to a security concern given Vodafone’s strategic role in the UK’s telecommunications services.

It has now ordered a “national security committee” to be set up at Vodafone, which will oversee and monitor any sensitive work it carries out that could have an impact on national security.

In 2016 the CMA and the European Commission blocked Three’s attempted takeover of O2, arguing that it would have risked higher prices.

However, in 2022 the UK telecoms regulator, Ofcom, changed its long-held stance, saying it was now more open to consolidation in the sector. It had previously argued that dropping to only three networks in a country could harm consumers.

Vodafone UK has a number of government contracts, and Three UK is owned by the Hong Kong-based CK Hutchison, which may raise concerns about foreign joint ownership of a key national asset, particularly given the city’s status as part of China.

Vodafone UK has public sector contracts with the Ministry of Defence, the Ministry of Justice, NHS 111 and local police forces.

“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,” said Ahmed Essam, the chief executive of Vodafone UK.

The two companies are the UK’s third and fourth biggest operators respectively. The newly combined company will, if the merger is completed, have more than 27 million subscribers, leapfrogging EE, owned by BT, and Virgin Media O2, owned by Spain’s Telefónica and the US-listed company Liberty Global.

“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,” said Robert Finnegan, the chief executive of Three UK.