The Competition and Markets Authority (CMA) has approved the $19 billion merger between Vodafone and Three UK, signaling a shift in regulatory priorities towards economic growth and infrastructure investment. This decision marks a departure from the CMA’s previous emphasis on consumer prices and raises questions about the future of market consolidation in the UK.
The CMA’s approval hinges on the argument that improved network infrastructure resulting from the merger will stimulate competition and benefit the UK economy. This rationale contrasts sharply with the CMA’s earlier rejection of Microsoft’s acquisition of Activision Blizzard, a decision based on concerns about competition in the cloud gaming market. In that case, the CMA dismissed Microsoft’s proposed behavioral remedies as insufficient.
However, in the Vodafone-Three case, the CMA has accepted behavioral remedies, entrusting Ofcom, the telecoms regulator, with overseeing pricing and investment commitments to address competition concerns. This change in approach reflects a broader shift in the UK government’s stance, with Prime Minister Keir Starmer emphasizing the importance of economic growth in regulatory decisions. Vodafone CEO Margherita Della Valle has echoed this sentiment, highlighting the crucial role of connectivity in driving economic growth.
The UK currently lags behind other European countries in mobile speeds, ranking 22nd out of 25 in 5G availability and download speeds, according to OpenSignal. Proponents of the merger argue that consolidation is necessary to address this issue and facilitate the significant investments required for network upgrades. Historically, structural remedies, such as creating new competitors, have been favored in similar mergers across Europe. However, these remedies have been criticized for hindering investment and limiting the benefits of consolidation.
This decision to allow a four-to-three mobile network merger based solely on behavioral remedies represents a “degree of pragmatism,” according to competition lawyer Alex Haffner. He notes that this approach deviates from the prevalent practice in Europe, where structural remedies have typically been required in such mergers.
CMA Chief Executive Sarah Cardell recently acknowledged the need for the regulator to “evolve” while upholding its commitment to promoting competition. This suggests a willingness to reconsider its approach to remedies, potentially paving the way for more mergers based on behavioral commitments.
While the CMA’s decision may facilitate investment in network infrastructure, it raises concerns about long-term monitoring and enforcement. The reliance on behavioral remedies necessitates ongoing oversight by the CMA and Ofcom for at least eight years, involving frequent reviews of the investment plan. This raises questions about the effectiveness and sustainability of such an approach. Tom Smith, a competition lawyer, suggests that this reliance on behavioral remedies, while potentially less controversial than the Activision case, should not be without scrutiny.
The shift towards behavioral remedies and a greater emphasis on economic growth could signal a broader trend in UK merger control. A senior M&A advisor observed that the CMA, under Cardell’s leadership, appears more receptive to deals that promote growth, potentially leading to increased consolidation in other sectors. This marks a significant departure from the CMA’s previous stance, as exemplified by its 2019 blockage of the Sainsbury’s-Asda merger.
This decision sets a precedent for future merger approvals in the UK, potentially prioritizing economic growth over consumer price concerns. The long-term consequences of this shift remain to be seen, but it undoubtedly signifies a new era in UK competition policy.
