CMA fears customers least able to afford mobile services would be most affected by deal

The provisional findings by the CMA come after a five-month investigation into the Vodafone-Three deal. Photograph: Toby Melville/Reuters

A proposed merger between the telecoms companies Vodafone and Three in the UK could lead to higher mobile bills for tens of millions mobile customers, the UK competition watchdog has warned.

Announcing the provisional findings of its investigation into the deal, the Competition and Markets Authority (CMA) said it was particularly concerned that those customers least able to afford mobile services would be most affected.

The CMA said the deal would result in a “substantial lessening” of competition across retail and wholesale mobile markets, and has called for assurances from both companies before a merger can be approved. A final decision is expected by 7 December.

In a joint statement, Vodafone and Three hit back at the regulator, saying they disagreed with a number of the elements in the CMA’s findings and said a merger would fix the country’s “dysfunctional mobile market” and “unleash more competition and investment”.

Margherita Della Valle, the chief executive of Vodafone, said: “Our merger is a catalyst for change. It’s time to take off the handbrake on the country’s connectivity and build the world-class infrastructure the country deserves. We are offering a self-funded plan to propel economic growth and address the UK’s digital divide.”

She rejected the CMA’s argument that the deal could lead to higher prices, insisting that there are no plans to change pricing strategies. “We do not see the possibility of pricing increasing going forward,” she said.

Della Valle noted that the CMA’s decision was not final and said Vodafone was looking forward to working with the regulator to get final approval

Robert Finnegan, the CEO of Three UK, said that the deal would bring “best in class 5G” to the UK.

The provisional findings by the CMA come after a five-month investigation into the deal, which would create the largest mobile operator in the country, with more than 27 million customers, leapfrogging EE, owned by BT, and Virgin Media O2, owned by Spain’s Telefónica and the US-listed company Liberty Global.

The CMA said on Friday that it would lead to price increases for its customers but could also result in customers getting reduced services such as smaller data packages as part of their contracts.

The report also raised concerns that any merger would negatively affect the wholesale market, and mobile virtual network operators (MVNOs) such as Lebara, Lyca Mobile and Sky Mobile, which rely on these network operators to run their own services.

The deal would reduce the number of the country’s network operators from four to three, meaning these MVNOs would be unable to secure the most competitive terms, affecting the deals they could offer to customers.

Discussions between Vodafone and Hutchinson CK, the owner of Three, have been ongoing since last autumn and include a pledge to invest £11bn in the UK over the next 10 years, including significant investment in the networks.

Vodafone and Three are two of the four major network operators in the UK, alongside BT/EE and Virgin Media O2.

The CMA did say that bringing both networks under one operator could improve the quality of mobile networks and accelerate the deployment of 5G networks and services across the country. However, it felt that these claims were overstated and a merged group would not necessarily have the incentive to follow through on the investments.

It has now put forward a number of remedies for Three and Vodafone to improve the offer and lessen its impact on competition. This would include legally binding commitments to ensure it carries out its investments, while also implementing measures to protect retail and wholesale customers.

Three and Vodafone will now be given a period of time to respond to the findings and offer remedies, with a final decision expected by 7 December.

The CMA said: “The CMA will retain the option to prohibit the merger should it conclude that other remedy options will not address its competition concerns effectively.”

The two providers are now the third and fourth largest telecoms networks, and the deal would initially result in Vodafone taking a 51% stake in the company, with Hutchinson taking 49%. Vodafone would also have an option to buy Hutchinson’s stake three years after completion.