The regulatory verdict is in on the proposed combination of Vodafone UK and local rival 3, and while this may feel like the end of a drawn out process for those monitoring the situation, analysts were quick to note for those involved, the hard work is just beginning.
Approval from the Competition and Markets Authority (CMA) came as little surprise given it had dialled down its rhetoric on potential issues in early November. Industry commentators were largely behind the decision, though BT and MVNO Sky Mobile were vocal detractors during the process.
CCS Insight director, consumer and connectivity Kester Mann noted the outcome was “about as good as it could have got for Vodafone and 3″.
“Not only did they secure approval, but the agreed remedies and commitments are less onerous than feared”.
Assembly Research founder and CEO Matthew Howett stated he expects “positive implications overall, not only for investment in, and the quality of, networks, but also for the wholesale customers and consumers and businesses that rely on them”.
The deal is expected to complete in H1 2025 and Mann noted, with approval secure, the “hard work really begins”.
In a fix
Omdia research director Dario Talmesio highlighted while the combined entity would “undoubtedly command significant mobile market share”, it would need to up its broader game to compete across a converged communications market.
“EE, part of the BT Group, has established itself as a leader in broadband, while VMO2, formed from the merger of Virgin Media and O2, dominates both fixed-line and mobile offerings,” Talmesio said.
Talmesio added the newly merged business would “need to explore strategic partnerships or acquisitions, possibly eyeing alternative network providers to bolster its presence in fixed line broadband and other complementary services”.
“The plan to tackle the fixed-line market with FWA is appealing, but it is unlikely to scale in the current fibre-expanding market”.
Another significant challenge facing the newly-weds will be the physical integration of companies and assets.
Mann noted “gaining regulatory approval is one thing, combining two established mobile networks with a complex assortment of suppliers is something else”.
PP Foresight founder Paolo Pescatore said it would “take many years before the full merits of the deal are realised and there are a lot of tough decisions to come”, citing the merging of two networks as “no easy feat” and unlikely to be smooth sailing.
Rivals will have a window of opportunity to lure disgruntled customers during this painful integration process
Paolo Pescatore, founder PP Foresight
“Rivals will have a window of opportunity to lure disgruntled customers during this painful integration process,” he added. “Priorities will be implementing a successful strategy and choosing a brand that resonates with consumers and business”.
The big decision about branding was also raised by Mann, who noted “in the long-term, it makes little sense to retain both the Vodafone and 3 brands as they mostly compete in the mobile market and would therefore incur duplicate costs”.
Highlighting Vodafone’s role as the senior partner, albeit only just with a 51 per cent stake in the joint business, both Pescatore and Mann expect its brand to prevail.
Mann noted 3 had “struggled to shake off poor perceptions of network quality since launching over 20 years ago, despite notable improvements in 5G”, while Pescatore stated “it is very hard to see the Vodafone brand disappearing from its home core UK market”.
Change management
However, these transitions are never easy, with Mann suggesting it would “require significant IT investment to move to a single online presence and result in major changes on the high street”.
He added communicating the change would also need to be carefully managed “as some customers may resist moving to a new brand”.
Pescatore asserted network “leadership will make or break the success of the deal”. He questioned “how much of the so-called promises will be spent on actual networks, when 5G is already widely available”.
Talmesio noted the merger would “create a telecom giant” and marks a “pivotal moment for the future” of the UK’s mobile and broadband landscape.
“A more consolidated market could provide opportunities for better networks and services, but also presents challenges in maintaining competitive pricing and ensuring regulatory commitments are met,” he concluded.
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