Vodafone UK Joint Venture With Three Faces Further Regulator Scrutiny — Update

By Elena Vardon

Vodafone UK's planned joint venture with Three UK will come under greater scrutiny after the country's competition regulator submitted the deal for a more in-depth antitrust review.

The Competition and Markets Authority said Thursday that it is referring the proposed transaction--which seeks to combine two of the four U.K. mobile network operators--for a phase 2 investigation after the companies failed to offer any undertakings to solve competition concerns.

In June, Vodafone Group and CK Hutchison Holdings--owner of Three--agreed to merge their U.K. operations, in a deal with no cash consideration, valuing the new business at more than 7 billion pounds ($8.86 billion). Vodafone would own 51% of the combined business with Hong Kong-listed CK Hutchinson owning the rest.

Last month, the CMA said the merger could lead to higher prices for customers and impact investment in U.K. mobile networks, leaving consumers and businesses worse off. The regulator set a deadline of April 2 for the companies to submit undertakings before starting a phase 2 investigation.

However, the groups said they won't be changing their pricing strategies after the combination.

"Vodafone UK and Three UK remain confident that the transaction will drive stronger competition in the mobile sector and give customers and businesses a step-change in network quality, speed, and coverage from day one," a Vodafone spokesperson said Thursday. Combining their networks would also be beneficial for competition in the wholesale market by offering more choice to mobile virtual network operators, they added.

But in March, the CMA's Julie Bon said the companies hadn't provided enough evidence to back their claims that the merger--which would bring 27 million customers under a new single network provider--would be good for competition and investment. She added that the deal would make it harder for smaller mobile virtual network operators such as Sky Mobile, Lebara and Lyca Mobile to negotiate good deals for their own customers.

The regulator's phase 2 review will assess whether the deal is expected to result in a substantial lessening of competition. If a panel of experts finds that this is the case, the CMA will ask for remedies which could include blocking the transaction or requiring the sale of part of the business.

The regulator's move was the expected next step and is aligned with the groups' completion time frame, the Vodafone spokesperson said. Both companies will engage constructively with the watchdog throughout the review, they added.

ING analyst Jan Frederik Slijkerman noted that these events are all normal for such a large merger. "Our base case remains that the merger will be cleared, subject to some remedies," he wrote in a note to clients.

Write to Elena Vardon at elena.vardon@wsj.com

(END) Dow Jones Newswires

April 04, 2024 04:54 ET (08:54 GMT)

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