Britain approves $19 billion Vodafone-Three mobile merger

By Paul Sandle

LONDON (Reuters) -Britain on Thursday approved Vodafone’s $19 billion merger with Hutchison’s Three UK to create the country’s biggest mobile operator after their investment promises outweighed concerns about higher customer bills.

The Competition and Markets Authority (CMA) said the combined group’s network investment plan would drive competition in the long term, dropping its objection that a move from four to three networks could push up prices.

We believe the merger is likely to boost competition in the UK mobile sector and should be allowed to proceed – but only if Vodafone and Three agree to implement our proposed measures,” it said.

Britain has some of the slowest mobile speeds in Europe and its new Labour government has told regulators to favour any deal or policy that would increase investment and lift economic growth.

Operators across Europe have argued that regulators’ focus on low prices has hurt investment and left its digital infrastructure trailing the United States and Asia, hampering the continent’s economies.

The four-to-three mergers that were allowed required the creation of challenger brands to keep prices low. The CMA’s approval on Thursday marks the first time a major European market has allowed such a deal without structural remedies.

Instead, Vodafone and Three, Britain’s third and fourth operators respectively, committed to spend 11 billion pounds ($14 billion) on a 5G network that would serve 50 million customers, including the subscribers of Vodafone’s network sharing partner Virgin Media O2 (VM O2).

It also sold spectrum to VM O2, pledged to cap some tariffs and agreed to set contract terms for mobile virtual operators.

The CMA accepted that three stronger operators – Vodafone-Three, current market leader BT and VM O2 – would provide enough competition to deliver a better service for customers.

GREEN LIGHT

Shares in Vodafone, which have more than halved in the last five years, were up 1% at 71 pence in morning trade.

Vodafone CEO Margherita Della Valle said the deal would unlock capital, unleash competition and investment, and boost economic growth by improving connectivity speeds.

“Advanced 5G is crucial for the growth of the UK’s science and technology sectors,” she told reporters.

Della Valle said it was too soon to say if the group would keep both main brands and its Voxi and Smarty value brands.

Its rivals, both of which were created by fixed-line and mobile mergers, will be hoping to capitalise while Vodafone and Three are focused on a complicated integration process.

Analyst Karen Egan at Enders Analysis said the approval was the right outcome after Hong-Kong’s Hutchison warned it was struggling to invest because it did not make a return on its capital.

Three high quality networks instead of four inferior ones will serve consumers and businesses better, and the industry can move away from the low returns, low investment cycle that has dogged it,” Egan said.

Vodafone will own 51% of the combined company and will have an option to buy the remainder after three years subject to certain conditions.

($1 = 0.7859 pounds)

(Reporting by Paul Sandle Editing by Kate Holton, Jason Neely and Mark Potter)