Analysis-Vodafone-Three merger approval marks UK antitrust shift
By Paul Sandle
LONDON (Reuters) – Britain’s decision to allow two of its four mobile networks to merge is the first big sign that regulators have taken on board the government’s wish for them to prioritise economic growth and infrastructure investment over lower consumer prices. The Competition and Markets Authority (CMA) antitrust regulator cleared the $19 billion Vodafone-Three UK deal on Thursday after it accepted the companies’ argument that better networks would drive competition and be good for the economy. The approval comes 18 months after the CMA infuriated Microsoft (NASDAQ:MSFT) by blocking its $69 billion Activision Blizzard (NASDAQ:ATVI) deal outright over concerns about competition in the nascent cloud gaming market.
On that occasion, it rejected Microsoft’s offer of behavioural remedies – pledges on how the combined entity would operate to maintain competition – by saying they would be difficult to monitor.
After Microsoft protested that Britain was closed for business, the increasingly isolated CMA changed tack to approve a revised deal.
On Thursday, it accepted behavioural remedies for the Vodafone-Three deal, tasking telecoms regulator Ofcom to oversee promises on pricing and investment to satisfy its competition concerns – a change in approach for the regulator.
Britain’s new Prime Minister Keir Starmer told a forum of international investors in October that the CMA – which has played a bigger role in merger control since Britain left the European Union – and other regulators had to take “growth as seriously as this room does”.
That message chimed with Vodafone (NASDAQ:VOD)’s Chief Executive Margherita Della Valle, who put growth at the centre of her pitch when the deal was announced in June 2023.
She pressed the point on Thursday. “Good connectivity is critical to so many parts of our lives and is central to the UK’s economic growth ambitions,” she said.
Britain has some of the slowest mobile speeds in Europe, ranking 22nd out of 25 European countries for 5G availability and download speeds, according to analytics group OpenSignal.
PRAGMATIC OUTCOME
Competition lawyer Alex Haffner, a partner at Fladgate, said the CMA’s decision was notable for permitting a four-to-three network merger in mobile on the basis of purely behavioural remedies, reflecting a “degree of pragmatism”.
“Over the past decade a multitude of four-to three mobile network mergers across Europe have been permitted only on the basis of significant structural remedies being conceded by the merging parties,” he said.
Operators have long argued that those structural remedies, which often entailed the creation of new challengers, kept pricing low but constrained investment and limited the benefits of the consolidation.
CMA Chief Executive Sarah Cardell said last month the regulator must “evolve” while staying true to its mandate to promote competition for the benefit of consumers. That would include rethinking its approach to agreeing remedies.
Competition lawyer Tom Smith said the CMA’s dislike of behavioural remedies seemed to become a “rigid policy position” during the Microsoft-Activision merger.
Thursday’s outcome suggested that it had eased that opposition, he said, even though such remedies would still only rarely be acceptable.
“In allowing the behavioural remedies in this case, the CMA and Ofcom have consigned themselves to at least eight years of monitoring the companies’ activities and debating frequent revisions to the investment plan,” he said.
“It will probably be less controversial than the Activision case, but it shouldn’t be.”
One senior M&A adviser said there was increasingly a view that the CMA under Cardell was more open to deals that led to more growth.
As a result it was favouring more behavioural remedies instead of structural ones, which could lead to more consolidation in other sectors, he said.
The CMA blocked a merger between Sainsbury (LON:SBRY)’s and Asda in 2019, a deal that would have united two of Britain’s four largest supermarkets.