General debate on the potential merger of Three UK and Vodafone

A Backbench Business Committee debate is scheduled to be held on 14 December 2023 in the Commons chamber on the proposed merger between Three UK and Vodafone. The debate is sponsored by Rt Hon. Liam Byrne (Lab).

The debate follows a debate in Westminster Hall on the same topic in September 2023.

Mr Byrne has called the debate in particular to consider new evidence from Australia about competitive dynamics, national security concerns, and hearings from parties at the Business and Trade Committee, which are addressed in the debate pack.

The merger is being investigated by the CMA to assess whether competition is likely to be affected.

Mobile network operators

Mobile networks (including masts and antenna) are built by telecoms companies called mobile network operators (MNOs). Since 2010, when T-Mobile and Orange merged to become EE, there have been four MNOs in the UK. They are: Vodafone, Three, O2, and EE.

Each of the MNOs offers mobile services to customers. MNOs also act as wholesalers, selling network access to other telecoms companies which do not have their own network infrastructure. These companies, called mobile virtual network operators (MVNOs), use MNOs’ networks to provide services to customers. MVNOs include Tesco Mobile and GiffGaff.

Vodafone and Three (plus the MVNOs using their networks) hold around 19% and 11% of the consumer mobile market respectively. This makes Vodafone and Three the third and fourth largest MNOs, behind O2 (around 34%) and EE (around 28%).

Views on mobile market consolidation

Three/Vodafone and pro-merger views

Three and Vodafone have argued that they are unable to effectively compete with O2 and EE.

They argue that they are unable to recover their cost of capital, and a merged entity would be able to increase investment in mobile networks, providing better services for consumers.

Speaking to the Business and Trade Committee, Karen Egan of Enders Analysis said a merged entity would be able to invest more efficiently. For example, rather than duplicating networks in London, it could expand infrastructure across the country.

The companies argue countries with three MNOs generally have better networks, faster 5G rollouts and do not necessarily have higher prices.

They have committed to continue to provide cost-effective contract-free products with no annual price increases and discounted tariffs for eligible households.

Opposing views

Unite the Union has argued that the merger could increase prices, drawing on analysis from the Balanced Economy Project.

It has also said evidence from Australia showed a decrease in investment following a telecoms merger, though Dr Jorge Padilla of consultancy Compass Lexecon which has been hired by the firms, argued the case was not comparable to the merger under consideration.

Providing evidence to the Business and Trade Committee, Professor Tomasso Valletti, former chief competition economist at the European Commission, agreed arguing the merger would be anti-competitive.

Unite also noted the merger could lead to job losses. Vodafone’s representative told the Committee that while there may be job losses from consolidating head offices, this would be outweighed by the number of jobs the merged entity intends to create to upgrade its infrastructure.

Ofcom/Government

Ofcom has said that mergers need to be looked at on a case-by-case basis, rather than a presumptive view about the appropriate number of competitors.

The Government agrees with this view and has said it is a matter for the CMA to assess.

National security concerns

Unite and various MPs have raised concerns that the merger could risk national security, as Three is owned by Hong Kong-based CK Hutchinson Holdings Limited, which has links to the Chinese Communist Party.

Unite has noted that Vodafone is a strategic supplier to the UK public sector, while Three is not, meaning a merger would give Three and its owners access to government telecoms contracts.

The Government will assess the merger from a national security perspective, under provisions in the National Security Investment Act 2021.