Vodafone and Three: What £16.5bn merger actually means for customers and prices
After an almost 18-month battle the UK’s largest ever telecoms deal – which will see Vodafone and Three complete a £16.5bn merger – has been given the green light.
Described by Vodafone as a “once-in-a-generation opportunity to transform the UK’s digital infrastructure”, the deal has now satisfied the Competition and Markets Authority (CMA) enough for the watchdog to wave it through.
A cornerstone of the effort to allay competition concerns is a £11bn pledge to upgrade the merged group’s UK network.
But while this is undoubtedly a huge win for both Vodafone and Three, what does the news mean for their customers, their bills and the services that they currently receive?
Will my Vodafone bill go up?
Speaking to BBC Radio 4’s Today programme, Vodafone Group’s CEO Margherita Della Valle insisted that customers would ultimately be better served through the merger, pointing to the £11bn upgrade as a major factor.
The CMA has ruled that certain mobile tariffs will be capped for three years while virtual mobile providers will have access to pre-set wholesale prices and contract terms.
In September, the watchdog had raised concerns that the merger could lead to price increases for tens of millions of mobile customers.
It added that it could also see customers get a reduced service such as smaller data packages in their contracts.
In a statement issued at the time, the CMA also said that it has “particular concerns” that higher bills or reduced services would negatively affect those customers least able to afford mobile services as well as those who might have to pay more for improvements in network quality “they do not value”.
Since then, the watchdog said it is “now satisfied that the proposed network commitment, supported by shorter term protections for both retail and wholesale customers, resolve its competition concerns”.
Could better prices attract new customers?
Commenting on the merger’s approval, technology, media and telecom (TMT) analyst and founder of PP Foresight, Paolo Pescatore, warned that Vodafone and Three could see competition for their existing customers heat up in the coming months.
He said: “Rivals will have a window of opportunity to lure disgruntled customers during this painful integration process.
“Priorities will be implementing a successful strategy and choosing a brand that resonates with consumers and business.
“On this it is very hard to see the Vodafone brand disappearing from its home core UK market.
“Better price guarantees in the next few years will be a big pull for customers.”
He added: “The CMA has done a thorough job of highly scrutinising this deal, it’s now up to both parties to deliver on their promises.
“That should mean wins for UK plc – bringing much needed investment in the network – and for consumers in the form of better services.
“Let’s not forget that VMO2 is one the beneficiaries as it will get some of the excess spectrum from the combined merged entity.”
Deal comes with ‘strings attached’
Also commenting on the merger’s approval Dan Coatsworth, investment analyst at AJ Bell, said that “Long-suffering” shareholders in Vodafone will hope that the green light is the “launchpad for the business to finally show some dynamism after years of stasis”.
He added that the deal “comes with strings attached”, including the need to invest heavily in the UK’s 5G network and cap tariffs for three years.
He said: “The regulator will be looking over their shoulder, like a teacher looming over an errant pupil, to ensure these terms are met.
“Vodafone is promising the investment will be funded internally and that customers won’t see extra costs but that kind of promise is easier to make than it is to deliver. If nothing else, there will be relief on the part of investors that the deal has been concluded and everyone can move on.
“Vodafone has a long list of other issues to address, including weak performance in the German market, where it has been affected by regulatory changes.
“With the Three deal concluded, patience for any future messages of Vodafone being in transition is likely to run thin. The company must now deliver.”
Customers still playing a ‘waiting game’
Pescatore added that while a decision on the merger has been made today, customers are still playing a ‘waiting game’ to see what the real impact on them will be.
He added: “The bottom line is it will take many years before the full merits of the deal are realised, and there’s a lot of tough decisions to come.
“Merging two networks is no easy feat. While there are past examples with BT/EE and VMO2 to draw upon, it’s not going to be smooth sailing.
“Overall, it’s a big deal for both players, arguably even more so for Three given its business model would have been unsustainable in the long term.
“Network leadership will make or break the success of the deal.
“How much of the so-called promises will be spent on actual networks when 5G is already widely available?
“For now, EE still remains the benchmark when it comes to network leadership based upon recent developments and on fibre rollout through Openreach.”
What has Vodafone said?
In a statement issued to the London Stock Exchange, Vodafone Group’s CEO Margherita Della Valle said: “Today’s decision creates a new force in the UK’s telecoms market and unlocks the investment needed to build the network infrastructure the country deserves.
“Consumers and businesses will enjoy wider coverage, faster speeds and better-quality connections across the UK, as we build the biggest and best network in our home market.
“Today’s approval releases the handbrake on the UK’s telecoms industry, and the increased investment will power the UK to the forefront of European telecommunications.”
Three’s owner backs merger
Canning Fok, deputy chairman of CK Hutchison and chairman of CK Hutchison Group Telecom Holdings, said: “We have been operating telecoms businesses in the UK for over three decades and Three UK for the past two.
“We have invested in the people and the infrastructure, helping to bring the benefits of mobile connectivity to UK businesses and consumers.
“When Three and Vodafone are combined, CK Hutchison will fully support the merged business in implementing its network investment plan, the cornerstone of today’s approval by the CMA, transforming the UK’s digital infrastructure and ensuring customers across the country benefit from world-beating network quality.”
Why mega merger has taken so long to approve
Stuart McIntosh, chair of the independent inquiry group leading the investigation, said “It’s crucial this merger doesn’t harm competition, which is why we’ve spent time considering how it could impact the telecoms market.
“Having carefully considered the evidence, as well as the extensive feedback we have received, we believe the merger is likely to boost competition in the UK mobile sector and should be allowed to proceed – but only if Vodafone and Three agree to implement our proposed measures.
“Both Ofcom and the CMA would oversee the implementation of these legally binding commitments, which would help enhance the UK’s 5G capability whilst preserving effective competition in the sector.”
What happens next?
Vodafone and Three said they will “study the CMA’s final report in detail” and will continue to engage with the watchdog ahead of the merger formally completing.
That is expected to happen during the first half of 2025.
When it does, Vodafone will own 51 per cent of the equity and, after three years following completion and subject to certain conditions, it will be allowed to acquire Hutchison’s 49 per cent stake via a ‘Put and Call’ option.