UK Regulator Set to Launch In-Depth Probe of Vodafone-Three Merger

The U.K. antitrust regulator is planning to further investigate the proposed merger of Vodafone Group Plc’s (VOD) domestic mobile phone business with CK Hutchison’s Three UK, citing concerns that the tie-up could lead to higher consumer prices.

The merger will face an in-depth probe unless the two mobile-phone operators provide "meaningful solutions" to the regulators' concerns, the Competition and Markets Authority said in a statement Friday. The regulator cited its concerns that the combination of two of the four U.K. mobile networks would lead to customers "facing higher prices and reduced quality."

"Whilst Vodafone and Three have made a number of claims about how their deal is good for competition and investment, the CMA has not seen sufficient evidence to date to back these claims," the regulator said.

The deal would bring Vodafone UK's and Three UK's 27 million customers under a new, single network provider, the regulator said. Vodafone and Three have five working days to respond with solutions to avoid a more in-depth "Phase 2" investigation, it said.

In a joint response to the CMA's push, Vodafone UK and Three UK said an in-depth probe was "an expected next step in the process" and still see the merger completing within the original timeframe they set out. The companies said last year that they expected the deal to close by the end of 2024.

They said that both Vodafone UK and Three UK "are sub-scale, unable to cover their cost of capital, and constrained in their ability to invest and compete effectively against the two market leaders."

Vodafone has been focusing on its key European markets, of which the U.K. is one, and last week said it would sell its Italian division to Swisscom AG for 8 billion euros ($8.7 billion).

American Depositary Receipts (ADR) of Vodafone were up 0.9% at $8.68 as of 10:05 a.m. ET Friday.