The proposed merger between British telecom giant Vodafone (GB:VOD) and its rival Three UK seems to be in trouble, as the country’s competition regulator, the Competition and Markets Authority (CMA), has raised concerns about the impact of the deal on customers and the competitive landscape. The CMA conducted an in-depth investigation into the planned merger, which was announced in June 2023.
Vodafone and Hong Kong-based conglomerate CK Hutchison Holdings’ (HK:0001) Three UK struck a deal to combine their UK businesses, with Vodafone owning 51% of the combined entity and CK Hutchison holding the remaining stake.
CMA’s Key Concerns Over Vodafone-Three Merger
The CMA provisionally concluded that the Vodafone-Three UK merger would impact competition in Britain’s telecom market and drive higher prices for “tens of millions” of mobile customers. It could also result in reduced services like the inclusion of smaller data packages for customers.
The competition regulator is also worried about the impact of this deal on wholesale telecom customers or Mobile Virtual Network Operators (MVNOs) like Lyca Mobile, Sky Mobile, and Lebara. These players don’t have their own networks and are dependent on the existing network operators for offering their mobile services.
Regarding Vodafone and Three UK’s assurance to invest £11 billion in the country’s telecom infrastructure, the CMA thinks that the combined firm might not necessarily have the incentive to fulfil this promise.
Vodafone Responds to CMA
Vodafone and Three UK expressed their disagreement with the CMA’s provisional findings about the merger weighing on competition. The two companies stated that they are committed to their £11 billion investment plan. Moreover, they are reviewing the “Notice of Possible Remedies” and intend to work constructively with the regulator.
Meanwhile, the CMA will consider the potential solutions suggested by Vodafone and Three UK to address its concerns before arriving at a final decision by December 7.
Is Vodafone a Buy, Sell, or Hold?
With four Buys, five Holds, and one Sell recommendation, Vodafone stock scores a Moderate Buy consensus rating on TipRanks. The average VOD stock price target of 93.67p implies 20.5% upside potential from current levels.
