Game Of Phones: Voda-Three Merger Left Rivals Dialing For Help

Opinion is divided in the telecoms industry over the proposed Vodafone and Three UK merger, with at least one rival in favor of the deal, while others want to see the Brit competition regulator scrap it altogether.

It has been over a year now since the two mobile providers announced their intention to combine their UK operations, claiming the move would create a third player in the British market with the scale to be able to compete against the two giants, BT/EE and Virgin Media O2 (VMO2).

Since then, the Competition and Markets Authority (CMA) has taken an interest, and is working through its investigation into whether there are any potential antitrust issues over the pending union.

Its provisional findings, published last month, expressed concern that it could lead to higher bills for customers and less choice for Mobile Virtual Network Operators (MVNOs) that rely on the companies with actual infrastructure to run their own services. The CMA also listed potential remedies it might enforce to address these concerns, including prohibiting the deal altogether.

It will surprise few Reg readers that the UK's largest telco and former state-owned monopoly, BT, would rather not see two of its rivals joining forces, saying in its response to the CMA's Notice of Possible Remedies that: "The CMA currently considers prohibition to be the only effective structural remedy. BT agrees."

The telecoms giant notes that the CMA is seeking views on behavioral remedies as an alternative to an outright ban, but complains that these will be time-limited (such as freezing prices for two years) while any potential downsides such as reduced customer choice would be enduring.

Accordingly, it says that "BT does not believe behavioral remedies would work," and therefore "prohibition is the only viable and proportionate remedy."

But not everyone agrees. The UK's other major telco, VMO2, is rather more welcoming, saying: "VMO2 considers that permitting the Merger, subject to the spectrum divestment and amended Beacon network sharing arrangements, will deliver the best outcome for UK consumers and businesses."

The arrangements VMO2 is referring to here are a deal struck between it and Vodafone back in July to extend their current network sharing operations for more than a decade, as part of which some radio spectrum will also be transferred from the post-merger company to VMO2. Small wonder it favors the consolidation going ahead.

"The spectrum transfer will enable VMO2 to materially increase capacity, coverage, reduce congestion, and provide higher average upload and download speeds, thereby increasing competition in the retail and wholesale markets," the company states in its response.

Unlike BT, it believes that any concerns the CMA might have can be addressed by behavioral commitments from the Parties. "Behavioral remedies are appropriate in this case given the regulated nature of the telecoms sector," it says, claiming that Ofcom is well placed to assist the CMA in specifying, monitoring and enforcing VodaThree's proposed commitments.

Looking beyond the two major players, MVNO Honest Mobile also comes out in favor of the merger, with CEO Andy Aitken saying: "I believe that with the correct remedies, the merger will ultimately benefit the UK and consumers alike."

Aitken's concerns naturally focus on the wholesale market remedies, telling the CMA that "it is essential that virtual providers like Honest Mobile have continued access to these networks on fair and non-discriminatory terms," and calling for the merged entity to be required to maintain transparent pricing, preventing under-the-table practices that could disadvantage it and other MVNOs.

Sky, owner of another MVNO, Sky Mobile, is dead against the move. It says: "Sky considers that the Merger must be prohibited if the UK wants to retain a thriving and competitive mobile market for consumers with strong MVNOs able to compete head-on with Mobile Network Operators."

• Three and Vodafone: We need to merge because our networks are rubbish
• Three, Voda promise £10-a-month or below mobile tariffs in bid to sway CMA on merger
• UK watchdog fears Voda-Three merger will balloon phone bills for customers
• Vodafone, VMO2 shuffle spectrum to woo watchdog amid merger moves

The company claims that if approved, the deal will effectively set in stone the permanent, long-term structure of the UK mobile market since all spectrum licenses have already been allocated, preventing new market entrants.

In a heavily redacted submission, Sky speaks out in very strong terms about the potential effects on MVNOs, saying: "If the Merger proceeds without strong remedies, Sky would be forced into a future where the wholesale supply to MVNOs is even more concentrated and therefore much less competitive."

It warns the CMA against generic "sticking plaster" remedies such as wholesale access terms and/or ring-fenced capacity. "We do not consider that these remedies address the substantial competition concerns, will be effective or workable in practice," it states.

The Unite Union also reaffirmed its opposition to the conjoining of Vodafone and Three, stating that one of its primary concerns is potential price increases for tens of millions of mobile customers, or else a reduced service such as smaller data allowances in contracts.

It cited the Vodafone/TPG merger in Australia as evidence, which it says similarly reduced the market from four to three main players and resulted in all three significantly raising prices in the 12 months after the merger was completed in July 2020.

Unite also claims that overall investment levels by Australian operators are now 45 percent lower than before that merger, and urges the CMA to protect UK consumers by blocking this one.

Consumer group Which? appears to be neutral over the proposed deal, but expressed concerns that these might lead to higher prices for subscribers, and urges the CMA to ensure that if this does happen, the harm is offset by efficiencies and higher investment.

"We agree there is merit in exploring whether there is a package of behaviorial remedies which would credibly minimize the likely consumer harm from horizontal unilateral effects in the retail and wholesale markets, while maximizing the benefits from rivalry-enhancing efficiencies (REEs)," the organization says.

In summary, some valid objections to VodaThree's coupling are expressed, but self-interest plays a significant part in which remedy or remedies that respondents would like to see imposed. It seems that whatever final decision the CMA eventually comes out with, it is unlikely to please everyone. ®