On 4 April the Competition and Markets Authority published its decision to refer the merger of two of the UK's largest mobile network providers, Vodafone Limited and Hutchison 3G UK Limited, for a full "Phase 2" merger inquiry.
This followed the announcement by their respective parent companies Vodafone Group Plc and CK Hutchison Holdings Limited of plans to bring the UK mobile operators together as a joint venture, which would be one of the largest players in the UK mobile market.
The Phase 1 Investigation
In our previous blog post, we outlined the CMA's decision to undertake an initial "Phase 1" examination of the merger given the potential for it to lead to a substantial lessening of competition within the UK telecommunications market. This initial phase of a merger inquiry sees the CMA engage with the merging parties, seek input from industry experts and stakeholders, and evaluate relevant data and evidence to assess the potential impact of the merger on competition and consumer choice. The CMA's examination is concerned with both the immediate and long-term implications of the merger, taking into account market trends, technological advancements, and regulatory developments.
The CMA concluded that Vodafone and Three acted as important alternatives for mobile customers and noted that Three was generally the cheapest of the four UK mobile network operators. The CMA therefore determined that the deal could lead to customers facing higher prices and reduced quality, since there would no longer be rivalry between the two businesses to win new customers and retain existing ones. The CMA was also concerned that consolidation among the "big" operators would reduce the number of them available to host so-called "virtual networks" in which smaller mobile operators pay to use the infrastructure of the largest ones.
On 28 March 2024, the merging parties informed the CMA they would not offer any undertakings to the CMA in lieu of a reference (for example, by agreeing to divest party of the merged business, or agree to certain conditions).
On 4 April 2024, the CMA announced its decision to escalate its scrutiny of the Vodafone-Three merger by referring it for a full Phase 2 inquiry.
The Phase 2 Investigation
Under the Enterprise Act 2002, if the CMA believes that a transaction may be expected to result in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services, then (unless there are specific grounds for not doing so) it must refer the transaction for a Phase 2 investigation.
In Phase 2 the CMA convenes an independent inquiry group to undertake a more detailed (and completely fresh) examination of the merger. The inquiry group will reach its own conclusion on whether the transaction can be expected to lead to a substantial lessening of competition, including by reference to potential benefits to consumers (for example if the merger will speed up the deployment of new technologies). If the group does conclude that there is a substantial lessening of competition that is not outweighed by the benefits of the deal, it can impose remedies that it considers are appropriate to mitigate or prevent that. Those remedies may include prohibiting the merger entirely or imposing conditions to safeguard competition within the market.
During the Phase 2 investigation, the merging parties are prohibited from taking steps to implement the merger without the specific consent of the CMA and may be subject to interim "hold separate" orders by the CMA.
Next Steps
This investigation has a statutory timetable of up to 24 weeks, with the possibility of an 8-week extension if necessary. The CMA's Phase 2 Report is therefore due on 18th September 2024. Following publication of the final report, the parties will have 12 weeks, extendable by 6 weeks, to comply with any orders or agree to any undertakings necessary to address the CMA's Phase 2 findings.
Conclusion
The initiation of a Phase 2 investigation by the CMA underscores the current focus on ensuring healthy competition within the UK telecommunications sector, particularly at a time when the CMA and Ofcom are concerned both with ensuring ongoing investment and future competition and with controlling price rises in the sector.
The UK's merger control regime can sometimes be viewed by merging parties as low-risk given that it is not mandatory and there are no fines for failing to notify a merger (unlike in the EU, for example). But the CMA's increasingly aggressive approach to mergers that threaten to stifle competition and its growing reluctance to accept behavioural (rather than divestment) remedies offered by merging parties, mean that it is important for merging parties to take the CMA's processes, and potential remedies, seriously.
If you have any queries about this merger, how the CMA's powers might affect your own transaction, or competition law more generally, get in touch with Jamie Dunne, Charles Livingstone or your usual Brodies contact.
