August 7, 2023
Competition regulators are looking at Vodafone’s proposed UK merger with Three against a backdrop of legal concerns over how the UK telecoms market operates.

The UK telecoms industry has often been regarded as highly competitive, and thus not an area that Ofcom (the UK telecoms regulator) has to regularly take drastic action in as a regulator. However, recent price hikes have begun to raise serious questions over how these businesses have been treating consumers.

Inflation rates are increasingly rising, which places more and more pressure on British consumers. Increases in inflation are usually reflected in virtually all products, and this is generally the case for consumers’ telecoms deals (e.g. mobile phone contracts) too. However, a number of large UK telecoms companies have increased their rates far higher than inflation figures alone would have. 

It is worth noting that inflation can be measured in different ways, however – the two most important measures are CPI and RPI. They have a number of crucial differences, including the rounding of indices, geometric vs arithmetic means, focuses on costs such as food vs housing, and more. Regardless of which definition is used, however, UK telecoms providers have been hiking prices far above inflation.

A large number of firms have opted for a 3.9% bill increase over CPI (although some, such as TalkTalk, have opted for slightly lower increases around 3.7%). These hikes are, of course, extremely impactful on the pockets of the average British consumer – though that is, on a surface level, more of a moral issue, – not inherently an issue for antitrust regulators.

Example Of Annual Price Hikes from UK Telecoms Companies

Provider Price Hikes (on top of CPI)
O2 3.9%
Vodafone 3.9%
Three 3.9%
TalkTalk 3.7%

Telecoms Companies: Antitrust Issues

Ofcom, the telecoms regulator, does not directly regulate prices between the public market, where it believes competition is relatively healthy. Ofcom does encourage the major companies to ‘think very carefully about whether significant price rises are justified during an exceptional period of hardship for many people’, as quoted in the Guardian, but the extent to which the major players will listen is questionable.

However, Ofcom is now formally investigating the fact that the vast number of telecoms companies hiking prices so far above inflation is leaving the average strained British consumer (especially in the current cost of living crisis) with far fewer contract options that are genuinely affordable, thus suggesting a lack of genuine competition. 

Ofcom has also suggested that it feels that a number of these companies are not clear enough about the fact that prices can (and clearly do, by a significant amount) rise mid-contract when advertising their services to consumers. Surveys have suggested that a huge proportion of the public are not aware of this being possible in the first place – let alone that these hikes are often well over rates of inflation. As a result, Ofcom have launched campaigns to make the public more aware of their rights in these instances. 


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Contributions To Inflation

Another issue (although not an antitrust one) which has been raised is the fact that the continued apparent ‘over-increase’ of prices by major UK telecoms companies is itself contributing to the persistence of inflation. UBS’ chief economist has been quoted in the Guardian as stating that this move by the big players ‘is going to potentially prolong inflation at least for that sector’. Bills for phones and broadband already make up a substantial proportion of monthly consumer spending, and thus are an incredibly important cost to keep down in the context of inflation.

This then turns into a vicious cycle, where further inflation feeds further inflation, phone/broadband contracts become less and less affordable, and ultimately, the amount of competition amongst companies not participating in huge hikes (the ultimately affordable ones), becomes increasingly reduced for the consumer, whom Ofcom have a duty to represent.

The Response

The UK telecoms companies being criticised in this way have responded by making a number of observations.

  • First, they feel that contracts were kept at a more than reasonably low rate for a number of years previously.
  • Second, they argue that the sector needs greater investment (e.g. in infrastructure) in order to remain competitive, and that increasing prices is the only way that this will be attainable.
  • Third, they obviously claim that the price increases are necessary to cover their own increased costs due to inflation. However, this has been disputed by a number of economists, who feel that it is unlikely the costs of every major UK telecoms company involved have risen by the same amount – and to such a large extent. The big players have responded by pointing to variations in price rise (such as that of TalkTalk), since the idea of these hikes being coordinated within the industry (which they adamantly deny) would raise extremely serious antitrust issues.

The Vodafone-Three Merger & The CMA

In the midst of all these concerns, Vodafone is attempting to push through a huge merger with Three in the UK. They have both argued that the merger is necessary to justify investment (as already mentioned above in regard to price hikes) – especially in infrastructure such as 5G networks, which the government has been promoting heavily

The CMA (Competition Markets Authority) and many other merger regulators (especially in the EU) have not particularly warmed to the idea of UK telecoms megamergers in the past – for example, blocking the O2-Three deal back in 2016, after feeling that the concessions made were not sufficient to protect consumers from huge price hikes.

Concluding Thoughts

The combination of concerns over the fact this would leave the UK mobile network with only 3 major providers (an antitrust concern) and the already questionable (perhaps even coordinated) price hikes (its own competition law concern if viewed from a particular angle, as already explained above) means that the merger is likely to run into significant opposition.


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