Mobile-merger misdial
The Competition and Markets Authority will launch an investigation into Vodafone and Three’s proposed deal. Matthew Partridge reports
The planned £15bn merger between Vodafone and Three could be derailed after the competition watchdog said it intends to launch a major investigation into the deal, says Daniel Binns on Sky News. The Competition and Markets Authority (CMA) has already taken a first look, and last month it asked both firms to respond with “meaningful solutions” to concerns that a tie-up would reduce competition. But as Vodafone and Three have failed to do so, the CMA has decided to go ahead with a “lengthy, in-depth” examination, which will take at least 24 weeks and could result in the merger being blocked.
Despite the CMA’s actions, both companies aren’t backing down, says James Warrington in the Telegraph. They remain “confident the deal would bring benefits for consumers”. They argue the tie-up “is needed to give them the scale to compete with larger rivals EE, owned by BT, and Virgin Media O2”. Indeed, in an attempt to reduce concerns about degraded service, they have pledged to invest £11bn in their combined 5G mobile network once the deal has completed. What’s more, Three, which recorded its first loss in 13 years in 2023, has warned its finances may prove “unsustainable” if the merger is blocked.
Subscale operators?
Cynics are already arguing that Three’s losses are a timely “sob story” that “plays to the CMA gallery”, says Alistair Osborne in the Times. But the two companies do have a point when they argue that they are currently “subscale”. This is particularly true given they are facing “big investments” for advanced 5G networks, which will be vital for delivering “everything from AI to NHS remote-patient monitoring”. Their case is also strengthened by the fact that Ofcom noted in 2022 that only the two bigger operators had recently been earning returns in excess of the cost of capital. The upshot is that this “may be a rare case where a four-to-three deal doesn’t ring alarm bells”.
The merger may help boost income and earnings for both companies, but it is bad news for consumers, argues Alex Brummer in the Daily Mail. In contrast to the “gobbledegook” claims that a tie-up will “drive competition and investment”, having fewer networks will instead “encourage higher prices, diminish service and shrink the supply of capital”. It will also “smother” competition from lesser players such as Sky Mobile, Tesco Mobile and lesser high-street names such as Lebara. Vodafone should take the CMA’s hint and “think again”.
Whatever happens to the deal, Vodafone shareholders have other reasons to be optimistic, says Cliff D’Arcy for The Motley Fool. At the same time as trying to merge with Three, it has also decided to sell its Italian business to Swisscom for €8bn, with roughly half the sum set to be returned to shareholders in the form of share buybacks. Such a large repurchase could give Vodafone’s shares a significant fillip over the next year.