British regulator says $19.5 billion Vodafone-Three merger could go ahead if remedies are adopted

LONDON — British telecom firms Vodafone and Three’s multibillion-pound merger could go ahead if the companies adopt a series of proposed remedies to clear competition concerns, regulators said Tuesday.

In a statement, the Competition and Markets Authority said that the £15 billion ($19.5 billion) deal is likely to be approved, if Vodafone and Hong Kong-based CK Hutchison’s Three proceed with billions of pounds of investment into British telecom infrastructure and add short-term customer protections.

Vodafone has previously said that the combined entity, once merged, would invest £11 billion ($14.46 billion) into U.K. telecommunications infrastructure.

Among the conditions required for the deal to go through are:

• a legally mandated commitment, overseen by telecom watchdog Ofcom and the CMA, to deliver on their joint plan to upgrade and improve networks over the next eight years across the U.K.
• maintaining certain existing mobile tariffs and data plans for at least three years for both current and future Vodafone and Three customers, including their sub-brands
• pre-agreed prices and contract terms to ensure mobile virtual network operators (MVNOs) — carriers that use network infrastructure from third-party operators — can still get competitive wholesale deals

Vodafone shares were up 1.5% Tuesday.

Stuart McIntosh, chair of the CMA inquiry group leading the investigation, said the regulator believes the Vodafone-Three merger has the potential to be “pro-competitive” for the U.K. mobile sector, if its concerns are addressed.

“Our provisional view is that binding commitments combined with short-term protections for consumers and wholesale providers would address our concerns while preserving the benefits of this merger,” McIntosh said in a statement Tuesday.

Vodafone and Three hold that the CMA’s remedy framework “provides a path to final clearance,” a Vodafone spokesperson told CNBC via email Tuesday.

“The merger will be a catalyst for positive change. It will bring significant benefits to businesses and consumers throughout the UK, and it will bring advanced 5G to every school and hospital across the country,” the Vodafone spokesperson said.

The CMA said its final decision on the merger is due by Dec. 7.

The CMA provisionally found in September that the Vodafone-Three merger could lead to higher prices for customers and harm competition among MVNOs, such as Sky Mobile, Lyca, Lebara and iD Mobile. Following the provisional findings, the watchdog consulted on potential solutions to address its concerns.

Vodafone first announced its agreement with CK Hutchison to merge with Three in June last year. Vodafone would own 51% of the combined business, leaving CK Hutchison with the rest.

The deal, which marks one of the first major U.K. telecom consolidation efforts in several years, would reduce the number of mobile operators in the country to just three.

Vodafone and Three were lagging behind larger rivals EE, which was bought by BT in 2016, and behind O2, which is owned by Telefonica and Liberty Global.

Vodafone argues the deal is justified since U.K. digital infrastructure is lagging behind other major economies, highlighting the need for increased investment in areas like next-generation 5G networks and broader coverage to more parts of the country.

Vodafone has also said it disagrees with earlier findings from the CMA that the merger would lead to price increases for consumers. It says the merger wouldn’t pricing strategy and would enhance competition between mobile virtual network operators, or MVNOs.

Kester Mann, director of consumer and connectivity at technology research firm CCS Insight, said that the CMA’s announcement of Tuesday marked a “big step forward” for the two telecoms giants to complete their deal to merge.

“Approval would mark one of the most significant developments in the history of UK mobile, heralding the arrival of a new market leader with over 29 million customers,” Mann said in emailed comments.

“The watchdog’s statement won’t be welcomed by all. BT and Sky Mobile have sternly opposed the deal and are likely to vociferously attempt one final time to have it blocked before the CMA’s final deadline in less than five weeks,” Mann added.

 BT, the U.K.’s largest telecoms network provider, has previously said that the proposed merger would created an entity with “disproportionate share of capacity and spectrum, unprecedented in U.K. and Western European mobile markets.”

BT said it thinks the deal would “substantially lessen competition and deter investment.”