Vodafone clashes with watchdog over Three merger

Vodafone and Three have rejected claims by the UK's competition watchdog that their proposed merger would lead to higher prices for millions of mobile users.

The Competition and Markets Authority (CMA) has "provisionally concluded" the deal would weaken competition between mobile networks.

It has particular concerns that customers who are least able to afford mobile services would be most affected.

The findings are the latest from the CMA's ongoing probe into the merger, which it launched in January.

The regulator will now consult on its findings and potential solutions to its worries over competition.

These solutions could include legally binding investment commitments, and measures to protect both retail and wholesale customers.

"The main knockback to the merging parties is that the CMA considers claims of superior network quality post integration to be "overstated"," said Kester Mann from analysis firm CCS Insight.

But he said the regulator was not shutting the door on the deal.

"Vodafone and Three should be encouraged by the tone of the CMA's report, which appears more open to the merger than I was expecting."

But Rocio Concha, director of policy and advocacy at consumer group Which?, took a different view.

"The regulator's finding has set a high bar for the merger to proceed," she said.

"It is clear from those findings that the planned merger between Vodafone and Three could have a negative impact on millions of consumers."

But he warned it would be "challenging" for the regulator to find remedies for its concerns.

Vodafone and Three revealed plans to merge their UK-based operations in June last year, creating the biggest mobile network in the UK with around 27 million customers.

But the CMA provisionally concluded on Wednesday that such a deal would lead to a "substantial lessening in competition".

In addition to worries over price and service levels, the regulator is also concerned that the deal may make it more difficult for smaller players such as Lyca Mobile, Sky Mobile and Lebara - who rent space from the bigger operators - to get a good deal.

Vodafone and Three have said the tie-up would lead to an additional investment of £11bn in the UK.

The CMA found that a merger of the two could improve the quality of mobile networks and accelerate next generation 5G networks and services, as claimed by the companies.

But it considered these claims were "overstated", and that the merged firm would not necessarily have the incentive to carry out planned investment after the merger.

In a statement, Vodafone and Three said they disagreed with the CMA's findings.

"By all measures, the merger is pro-growth, pro-customer and pro-competition. It can, and should, be approved by the CMA," they said.

The CMA will issue a final report into the deal in December.

The firms added they would be working with the regulator to secure approval for the tie-up.