Vodafone-Three Merger in Trouble as BT Launches Major Attack

When two telcos plan to tie the knot, it’s not common to hear rivals shouting from the sidelines. Mergers often promise to ease competition in a crowded market, making things easier for everyone involved. But BT, the UK’s biggest operator, has a different take on the proposed Vodafone-Three merger. After voicing some concerns earlier this year, by the end of September, BT was practically shouting from the rooftops in a 27-page submission to the Competition and Markets Authority (CMA). The document, published last week, reveals BT’s staunch opposition to the deal.

What’s BT Saying?

BT isn’t mincing its words – it’s calling for “prohibition” of the merger, as though it’s straight out of a 1930s crime drama! While Vodafone and Three might not be criminals, BT argues their union could do serious harm to consumers. The CMA seems to agree, estimating that the merger could cost up to £1.1 billion per year in potential harm. In its submission, BT echoed the sentiment, stating that blocking the merger is the only real way to protect competition.

A Threat to Competition

From BT’s perspective, this merger is about much more than just the combination of Vodafone and Three – it’s a threat to its own top spot in 5G. Vodafone and Three have big plans if the merger goes through, pledging to invest £11 billion over ten years to build a nationwide standalone 5G network. This would create a stronger, more competitive player, and BT isn’t thrilled about that prospect.

Why the CMA is Worried

The CMA has been down this road before. Just a few years ago, it blocked Three’s attempt to merge with O2, citing competition concerns. And now, it’s faced with a similar situation. Vodafone and Three insist they need this merger to stay competitive and fund essential network improvements. But the CMA isn’t convinced, saying they’d still be viable and competitive even if they remain separate companies.

Structural vs. Behavioural Remedies

There are a couple of ways the CMA could approach this. First, there’s the idea of structural remedies, which could include requiring Vodafone and Three to sell off some of their spectrum or network assets. However, this solution isn’t popular with anyone. Vodafone and Three have offered to sell some spectrum to Virgin Media O2 and plan to shut down some sites once the merger goes through. But they don’t want to go any further than that. Meanwhile, BT has voiced concerns about any structural remedies involving unknown third parties, especially when it comes to network-sharing ventures like MBNL, a joint operation between BT and Three.

Then there are behavioural remedies, which seem even less promising. These could involve monitoring Vodafone and Three’s pricing or having Ofcom oversee their £11 billion investment commitment. BT argues that such remedies would be ineffective, difficult to monitor, and almost impossible to enforce.

A Closer Look at the £11 Billion Commitment

Vodafone and Three’s commitment to invest £11 billion sounds impressive at first, but on closer inspection, things get a little murky. The small print reveals that this figure represents overall capex investment over ten years, which breaks down to about £1.1 billion annually. For context, that’s not a massive step up from Vodafone’s current spending.

James Crawshaw, an analyst from Omdia, explains why this is problematic. “Measuring capex is an input. What the regulator needs to measure is the outcome or the output,” he says. Essentially, it’s not about how much Vodafone and Three are spending, but about what consumers are getting out