BT slams Vodafone/Three merger during CMA investigation

As part of the second phase of its investigation into the merger between Vodafone and Three, the CMA invited interested parties to submit views on the potential impact the deal would have on the market, which apart from anything else would reduce the number of UK operators from four to three.

In has published ten responses, some anonymous, with BT’s being the lengthiest and most overtly in opposition to the merger.  

The document runs to 40 pages and as such articulates its opposition in detail. Among its concerns are that deal will create a merged entity with a ‘disproportionate’ share of capacity and spectrum, which it says is unprecedented in UK and Western European mobile markets, which will ‘substantially lessen’ competition and deter investment.

It said the merger will create a combined entity with a ‘dominant’ 61% share of UK mobile network capacity resulting in a ‘capacity asymmetry’ between the combined entity and the other operators. “As a result, the Merged Entity would be able to credibly threaten to deploy capacity strategically to undermine the business case and therefore reduce the incentive for rivals to invest in their respective mobile networks,” it said.

“Overall, BT believes that the combination of extreme capacity and spectrum asymmetry arising from the Merger, along with the unprecedented access that the Merged Entity will have to BT's (as well as to VMO2's) strategic investment plans, and the Merged Entity's ability and incentive to disrupt the effective functioning of MBNL, will give rise to a substantial lessening of competition in UK mobile telecoms markets, ultimately resulting in higher prices, poorer network quality, and reduced incentives to invest – all to the detriment of UK consumers,” added BT.

Consumer watchdog Which? also shared concerns surrounding the merger, stating that “Overall, our view is that the initial evidence points to a strong likelihood of weakened competition immediately following the merger. This risks less choice, higher prices and lower quality for consumers at least in the short term. Our analysis shows substantial proportions of customers consider both firms when shopping around, and switch directly between them when moving providers.”

Which? also said both firms have physical stores close to one another and while acknowledging this could be ‘counterbalanced by improved dynamic or potential competition in the long-run’ that hinged on whether the merger ‘will lead to greater or lower investment, and the evidence on this is much less clear.’

Unite the Union also came out against it, stating: “Our Union has campaigned extensively and rigorously against the merger due to evidence suggesting that it would lead to job losses, higher prices and further profiteering, without delivering the promised investment. Separately, we have also raised concerns about the national security implications and anti-union activity relating to Three UK’s owner, CK Hutchison, including the victimisation of three elected Unite representatives and one activist at the Port of Felixstowe.”

It should be stated that from a purely security perspective, the UK government gave the deal the green light back in May.  

Ericsson conversely made a positive case for the merger on the grounds that consolidation is conducive to operator’s ability to invest in networks – which of course neatly dovetails with its own business model of selling the networking kit.

“Ericsson believes there are benefits to the UK of the proposed merger between Vodafone UK and Three UK,” it said in the letter. “It can foster a more sustainable market structure to secure a return on investment for digital infrastructure and attract increased capital into the network.  Consolidation is broadly seen as a pivotal measure towards helping operators to attain the necessary scale for expanding their future network infrastructure.”   

“The potential merger offers the prospect of significant cost efficiencies and economies of scale, which will increase financial stability. This will permit more effective expansion of network coverage, capacity, and quality of service, both indoor and outdoor. Network expansion is crucial, particularly in underserved or remote areas where the digital divide persists.  The economies of scale could enable the merged entity to invest in upgrading and enhancing its services. This in turn should lead to better mobile coverage and performance sooner across the UK.”

Professor Stephen Temple, CBE to the CMA, (who stipulates he was the senior civil servant who persuaded Ministers that the UK could support four competing operators) provided a document that concluded with a long view, stating: “The CMA's decision will be a watershed moment for the future quality of the UK’s mobile infrastructures, affecting different consumer cohorts in various ways. Those most reliant on dependable, universal quality of coverage could be most affected. A continued decline in mobile infrastructure competition at the current rate of descent is also very likely to lead to a de facto "monopoly mobile infrastructure" in the long term.”

The Communications Chambers statement, penned by Stephen Howard, argued that the rise of social media and video calls/conferencing, a heavy proportion of internet traffic, has only been possible because of the ‘progressive collapse in the cost of conveying packets of data across telecoms networks’ and that these declines in unit pricing are driven by ‘heavy and continuous network investment.’

“It is therefore vital that the assessment of the proposed combination properly balance the empirical evidence on the pricing effects of mergers (which suggests that they do not in fact lead to price rises), with the risk that the industry’s already impaired ability to invest suffers still further erosion,” he said. “The proposed merger provides a way to improve returns and thus network investment viability, paid for out of operating efficiency gains. It should therefore be embraced.” 

The other published responses remained anonymous.

There’s a lot of detail provided in the documents either arguing for or against the deal, but what you’re not always going to get is entirely impartial responses from ‘interested parties’ on something like this – the interest in some of these cases stems from the fact the firms are competitors or sell into Vodafone and Three.

It’s up to the CMA now to do what it will with this feedback as it decides whether or not to give the merger the go ahead. The statutory deadline for Phase 2 is listed as 12 October 2024.