The Vodafone/Three Merger: how could it affect consumers?

What’s happening?

In June 2023, mobile network operators Three and Vodafone announced they intend to merge their businesses in the UK. The transaction would represent a major shift in the UK telecoms market. The number of network operators would fall from four to three, and the merged entity would provide the network for around a third of UK mobile customers, with the remainder using BT/EE and Virgin Media O2.

The Competition and Markets Authority (CMA) has responsibility for deciding whether the merger should be allowed on competition grounds. While a full merger investigation has yet to be launched, the CMA issued a preliminary ‘invitation to comment’ in October 2023. Which? has submitted its early views for consideration, informed by our analysis of the market, including a new survey of 2,000 consumers*.

Why does the merger matter?

Mobile and broadband services are essential to consumers. Around 95% of households have at least one mobile phone, UK adults spend on average almost three hours per day online using a smartphone and the majority of calls are now made from mobile phones. Consumers rely on mobile services for work, education, entertainment and keeping in touch with family and friends.

Competition between providers is necessary to deliver good outcomes to consumers on choice, quality and price. By and large, competition between the current four Mobile Network Operators (MNOs) has provided reasonable outcomes for consumers, including via investments in mobile networks. Around 7 in 10 consumers think mobile phone coverage (71%) and mobile internet speed (69%) are good or excellent in the UK. According to our online poll, around 7 in 10 consumers think mobile phone coverage (71%) and mobile internet speed (69%) are good or excellent in the UK.

Could the merger lead to worse outcomes for consumers?

When the CMA conducts its merger investigation, the key question it will try to answer is whether the transaction will amount to a weakening of competition that will harm consumers. Typically the risks of this occurring are higher when two companies that are merging are ‘close competitors’ of one another. The CMA’s guidelines say a merger between close competitors is more likely to lead to an increase in price and/or a reduction in quality.

Our research and analysis strongly suggests that the two firms are competing closely with one another. 

Firstly, our analysis of Ofcom’s Switching Tracker data shows that among switching customers, a significant proportion move directly between Three and Vodafone. In 2020 and 2021 combined, 23% of recent switchers to Vodafone came from Three; and among recent switchers to Three, 14% came from Vodafone. The flows between companies are shown in the chart below.

Suppliers recent switchers moved from and to

Secondly, our survey of 2,000 UK consumers finds that many customers who previously switched their provider or package considered both Three and Vodafone. This is important as the companies will put particularly strong competitive pressure on one another if they are both being considered as options by the same consumers. 

Among all those who had considered another provider, 45% had considered at least one of Vodafone’s brands and 42% at least one of Three’s brands. We also observe considerable overlap between the consumers who considered Vodafone and Three*. Of the customers who had considered Vodafone (and at least one other provider) as an option (n=192), 43% also considered a Three brand. Similarly, of the customers who considered Three, 46% also considered a Vodafone brand 

Finally, we looked at where the MNOs locate their physical stores. These are an important sales channel, particularly for customers buying contracts bundled with handsets. Co-location could be another indication of close competition for the same pool of customers. 83% of Three stores have a Vodafone store within a 5 minute walk, while 60% of Vodafone stores have a Three store within the same travel time. Overall the majority of all four MNO physical stores are located very close to one another, as shown in the table below.

Proportion of “Surrounding” stores within a 5 minute walking time of the “Centre” store

Could the merger have benefits for consumers?

Three and Vodafone argue that the merger will be “great for customers, great for the country and great for competition.” Key to this argument is that the larger, merged company will be able to make more efficient use of the combined network, and will become a stronger competitor to the other two MNO’s, which currently have substantially more customers on their networks. They also argue this would put them in a stronger position to invest in new 5G network infrastructure. 

However, the evidence from past mobile network mergers in other countries is unclear on whether they usually lead to better network quality. When Ofcom reviewed the relevant research in 2021 it concluded that “the empirical research that has been performed to date does not provide evidence of a positive link between mobile mergers and quality outcomes”.

What do we think?

Overall we think there is a substantial risk that the merger could have negative outcomes for consumers in the short term, including less choice, lower quality and higher prices. It may lead to better outcomes for consumers in the future if it leads to greater investment and more intense competition between the remaining three networks. However, there is a high degree of uncertainty about these benefits and there should be a high evidential bar if the CMA is to approve the merger on these grounds. We will be following the CMA’s analysis closely once it opens its investigation.

Our full response to the CMA’s initial invitation to comment can be found here.