The UK’s competition regulator may launch an in-depth investigation into the proposed Vodafone-Three merger following an initial review that found it “could lead to higher prices for customers and lower investment in UK mobile networks.”

Vodafone UK and Three UK are two major providers of mobile telecommunication services in the UK. Last year, both businesses announced a new joint venture agreement which would bring their 27 million customers under a new, single network provider.

However, after a 40 working day Phase 1 review, the Competition and Markets Authority (CMA) is concerned that the deal could lead to mobile customers facing higher prices and reduced quality.

The CMA found that Vodafone UK and Three UK provide important alternatives for mobile customers, both have made significant investments in their networks in recent years—including the rollout of 5G—and that Three is also generally the cheapest of the four mobile network operators.

The CMA is worried that combining the two businesses will lead to reduced rivalry between mobile operators to win new customers, as competitive pressure can help to keep prices low and provide incentive for network operators to improve their services by investing in network quality.

Further, the regulator is concerned that the deal may make it difficult for smaller mobile “virtual” network operators, such as Sky Mobile, Lebara, and Lyca Mobile, to negotiate good deals for their own customers by reducing the number of mobile network operators capable of hosting virtual networks.

When the proposed deal was announced last year, Margherita Della Valle, group chief executive of Vodafone, said it would be “great for customers, great for the country and great for competition.”

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Julie Bon, Phase 1 decision-maker for this case, said: “Millions of people in the UK depend on effective competition in the mobile market in order to access the best deals for them.

“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.

“Our initial assessment of this deal has identified concerns which could lead to higher prices for customers and lower investment in UK mobile networks. These warrant an in-depth investigation unless Vodafone and Three can come forward with solutions.”

Both Vodafone UK and Three UK have five working days to respond with “meaningful solutions” to the CMA, otherwise the deal will be referred to a more in-depth Phase 2 investigation.