Monday, December 23, 2024
Technology

UK regulator launches investigation into $19B Vodafone/Three mobile merger

When Vodafone and Hutchison-owned Three in the U.K. announced their plan to merge in a non-cash deal to create a $19B mega mobile operator in June of this year, we noted that it would likely face a sizeable regulatory hurdle. The next chapter in that story opened up today: the country’s Competition and Markets Authority, its main antitrust regulator, said that it was taking the first steps towards an investigation into the deal.

Today’s announcement formally opens up the invitation to comment, when competitors, the companies themselves, and any other stakeholders that have something to say about how this deal will help or hinder competition, can submit their two cents. They have until November 1 to do so.

The combined business will have roughly 28 million subscribers — as of this summer’s announcement, Vodafone has nearly 18 million and Three had just over 10 million — and would be worth some £15 billion (nearly $19 billion at today’s rates). The merged operator, as hammered out by the two companies, would be 51% owned by Vodafone and 49% owned by Hutchison, and would bring down the number of major mobile network operators in the country down to three from four (the others are O2 and EE).

The CMA has yet to announce dates for the official commencement of phase 1 of the investigation and the formal opening of the merger inquiry, which will happen following the commenting period and are the following two steps in the process. Investigations overall can take months or years: an attempt in 2015 by Hutchison, Three’s parent, to acquire O2 trudged through the courts for years and appears still to have some cases hanging over it.

The implications for startups, and the tech landscape, come in at a couple of levels: For one, for those looking to launch new kinds of virtual operators, it reduces the competitive landscape of carriers with whom any new operator might need to negotiate for bandwidth and other services.

That might simplify service deals, or make them more expensive, but it will also makes competing against incumbents more formidable. Those building and selling services to carriers — whether they are consumer-facing OTT apps or adtech or software or tools for managing services at the back end — will also have a smaller footprint of potential customers. Consumers also will ultimately have less competitive choice as a result.

“Millions of consumers and businesses in the UK rely on Vodafone’s and Three’s mobile networks to stay connected,” said Sarah Cardell, chief executive of the CMA, in a statement. “We will be carefully considering how this deal may affect competition in the UK, which could affect the options and prices available to customers. We will also assess how it may affect incentives to invest in the quality of UK mobile networks. This is an opportunity for those with an interest in this merger to let us know their views before we launch a full investigation.”

On the other side are the unit economics of telecoms: Three amassed substantial debt over the years as a newish entrant itself (it only emerged with the rise of 3G data-based services, hence its name), and one of the key points of this merger is that while Vodafone is not paying any cash, it’s taking on that debt. The companies said that the combined entity would help them make needed investments into 5G, and they have said they would put £11 billion into building new mobile and fixed-line network, with an intention to have its fiber network for fixed broadband access cover 82% of housholds by 2030.

The CMA added that by law, it “cannot consider other potential effects that a merger might have, for example, on employment or access to personal data.” It said that any national security concerns — perhaps a reference to Hutchison’s Hong Kong and thus Chinese ties — would “be a matter for the UK government, which may choose to intervene under the National Security and Investment Act if it finds concerns.”

Corrected to clarify that phase 1 has not officially commenced and a date has not yet been provided for it to open and close. 

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