On 26 January the Competition and Markets Authority (CMA) announced that it had started a Phase 1 merger investigation of Vodafone UK's joint venture agreement with Three UK under which both companies would combine their UK telecoms businesses. Interested parties have until 9 February to submit views on how the merger could affect competition.
UK merger review process
We recently blogged about the current UK merger regime here in the context of proposed changes under the Digital Markets, Competition and Consumers Bill, and previously here with regard to the enhanced role of UK merger control after Brexit.
Phase 1 of the UK merger control process is a relatively high-level review of a deal to establish whether it might cause a 'substantial lessening of competition' in any market within the UK. Potential markets are defined as narrowly as possible for the purposes of that analysis, meaning a limited number of products or services will be regarded as substitutes for each other, and can be broken down into small geographic markets. The CMA will look at the potential impact of the merger on market competition, consumer welfare, and innovation, based on a variety of factors such as market share, barriers to entry, and the likelihood of anti-competitive behaviour.
If Phase 1 raises substantial concerns, the investigation can proceed to a more in-depth "Phase 2" review by an independent panel to determine if the merger is expected to result in a substantial lessening of competition. This phase involves a fresh and detailed analysis of market dynamics, potential harm to competition, and potential remedies to address any identified issues. Alternatively the merging parties can offer to take steps to mitigate the effects on competition, known as undertakings in lieu of a reference.
Vodafone / Three
According to recent figures Vodafone and Three are respectively the third and fourth biggest players in the UK mobile market, with 20% and 15% of the market, behind O2 (38%) and BT/EE (27%). The merger would therefore turn the current "big four" group of competitors into a "big three".
During Phase 1, the CMA will engage in discussions with the merging parties, seek input from industry experts and stakeholders, and gather relevant data and evidence. It may also request additional information and documents from the parties to inform its assessment. In addition to examining the immediate impact of the merger, the CMA will consider potential longer-term effects on competition and consumer choice and how factors such as market trends, technological advancements, and regulatory developments could affect future market dynamics.
The CMA has a statutory deadline of 40 working days to complete Phase 1. However, the CMA may ‘stop the clock’ in certain circumstances – in particular, if any information it has formally requested remains outstanding.
Next Steps
The decision-making process following Phase 1 involves various possibilities:
- Clearance: In the event that Phase 1 reveals no significant concerns, the merger may be cleared. It could also be cleared if the CMA decides that the market lacks the significance to warrant a Phase 2 investigation; that there are discernible benefits to customers resulting from the merger that surpass the adverse effects on competition; or the merger lacks sufficient advancement or likelihood of proceeding to justify a Phase 2 investigation.
- Undertakings in Lieu (UIL): Parties may propose measures, like divesting part of the merged business, or behavioural commitments, to address competition concerns and remove the need for regulatory intervention through a Phase 2 process.
- Phase 2: If there are concerns that the merger will result in a substantial lessening of competition the CMA can make a reference for a Phase 2 investigation. Phase 2 lasts up to 24 weeks (extendable by an additional 8 weeks). An Inquiry Group, made up of a panel of independent CMA Members, conducts a more detailed assessment of the effects of the merger on competition, including considering what remedies it may be necessary to impose in order to remedy any adverse effects (including prohibiting the merger entirely). After issuing a final report, the CMA has 12 weeks (extendable by 6 weeks) to enforce orders or accept undertakings addressing Phase 2 findings.
Concluding thoughts
Although changes to the proposed deal meant that the recent Microsoft/Activision merger was ultimately cleared by the CMA, the CMA's initial decision to block that merger underlined that it will not just consider a merger's impact on competition now, but also its potential impact on competition in future, including through the removal of a potential innovator from the market. Vodafone and Three should expect the CMA to scrutinise their combination in a similar way and should perhaps be prepared to show a similar level of flexibility to that, ultimately, shown by Microsoft and Activision.
The CMA will often make contact with potentially affected parties during its phase 1 investigation, but interested parties are also free to get in touch with the CMA directly with any concerns about how the merger will affect any market. The deadlines are tight though so require quick action.
If you have any queries about this merger, or competition law more generally, get in touch with Jamie Dunne, Charles Livingstone or your usual Brodies contact.
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