Vodafone: CMA Gives Conditional Approval to Merger With CK Hutchison

Having previously voiced concerns that a merger deal (without remedies) between Vodafone and Three UK (CK Hutchison) could result in higher consumer prices, the Competition and Markets Authority in the UK has now given conditional approval to the deal, subject to legally binding commitments. These include price caps on certain mobile tariffs and preset wholesale prices for mobile virtual network operators for three years, as well as minimum levels of investment in the combined group's rollout of 5G networks across the UK. While these proposals are less drastic than mandating divestment of certain assets, they are still designed to stifle potential synergies and competitive advantages that could stem from the combined entity. Further, in the short term, they leave the door open for MNVOs to continue taking share from established operators. In the longer term, we believe reducing the number of network operators in the UK from four to three should create a more stable pricing environment and customers will benefit from proposed network upgrades. We plan to review the details of the merger, but do not expect to make any material changes to our fair value estimate or moat rating.