Watchdog reluctantly blesses Vodafone-Three merger – with strings attached

The UK's competition watchdog is doubtful Vodafone and Three will fulfill post-merger promises unless forced to, and wants safeguards put in place so the telcos don't hike consumer prices or water down the £11 billion network infrastructure upgrade they commited to.the proposed union, so long as VodaThree comply with the remedies put forth, which aim to protect customers and ensure a more competitive mobile market emerges.

In particular, the CMA notes in the paper, reducing the number of physical network operators from four to three will make it more difficult for MVNOs to secure attractive terms, reducing their ability to compete in the retail market. This last point is deemed of key importance by the CMA, because many MVNOs price aggressively and deliver to the value end of the market.

However, while the CMA concedes unification might deliver some"rivalry enhancing" network improvements, it also fears that VodaThree would, if left to its own devices, pursue a range of commercial strategies in response to changing market circumstances. The latter meaning it is"not likely to deliver the full joint business plan."

On tariffs, the commitment is to maintain the terms and conditions of all existing customers, and a pricing cap commitment across a number of tariffs. Naturally, Three and Vodafone concur with this view, pointing out the inability of smaller operators to compete is the entire reason for their merger, and this specific remedy is likely undermine their chances of delivering the JNP and the benefits of it.

In contrast, VMO2 believes the network commitment will, inevitably, substantially increase its own competitiveness and"thereby increase competition in the retail and wholesale markets."from VodaThree under the so-called Beacon 4.1 Agreement, should the wedding go ahead, and this will contribute greatly to increasing its competitiveness.

Partly, its argument seems to be that other operators will want to raise prices in line with inflation. This is echoed by a redacted respondent, who said it is not in support of time-limited retail market customer protections as these are not sustainable in the long term and lead to retail market distortion.

In contrast, VMO2's view is that no wholesale remedy is required as the extra spectrum it gains would deliver"substantial benefits" to the largest MVNOs , both of which just happen to have long-term agreements with VMO2.

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