(Bloomberg) -- Vodafone Group Plc’s planned merger with the UK unit of CK Hutchison Holdings Ltd.’s Three will now get an in-depth investigation from the country’s antitrust watchdog after it didn’t offer any remedies putting the £13 billion ($16.5 billion) deal in jeopardy.
The Competition and Markets Authority said on March 22 it was concerned that the deal creating the country’s largest mobile operator could hurt consumer choice, giving the firms a short deadline to offer up any proposals. The probe, which’ll run until mid-September could put the tie-up at risk should the firms continue to decline to offer any concessions to the regulator.
“There definitely is a considerable risk that it doesn’t get approved,” Karen Egan, head of telecoms at Enders Analysis, said. “There is a lot of logic for the deal and I think political and regulatory support among those familiar with the industry, but the CMA is a law onto itself and its way of looking at these things can be quite narrow and technical.”
Shares in Vodafone were 0.6% up in London by 10:28 a.m.
The watchdog said the deal could lead to higher prices and reduced quality for customers as well as affecting investment in UK mobile networks. They are also worried the deal may impact smaller virtual mobile networks including Sky Mobile, Lebara and Lyca Mobile.
Both companies said in a statement that they “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.”
Still, regulators have rejected previous attempts to consolidate the market. A previous attempt by Three to buy O2 was blocked by the European watchdog pre-Brexit, which cited one of its main reasons as the reduction of UK mobile network operators from four to three.
The deal with the Hong Kong billionaire Li family would see the two smallest of the UK’s four mobile operators combine in the fiercely competitive mobile market.
The firms “likely preferred to move the deal swiftly to this in-depth review, and will now turn their focus on devising a set of remedies that can satisfy the regulator but also preserve the value creation opportunity from the merger,” Erhan Gurses, a Bloomberg Intelligence telecoms analyst, said.
--With assistance from Jillian Deutsch and Katharine Gemmell.
(Updates with quotes from analysts in the third and ninth paragraph)
©2024 Bloomberg L.P.
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