Vodafone-Three merger could lead to higher prices, says watchdog

The proposed merger of Vodafone and Three could lead to "higher prices" and "reduced quality" for customers, the UK's competition watchdog says.

The proposed £15bn deal could now be subject to an in-depth investigation.

The combined group would be the UK's biggest mobile network with about 27 million customers.

The firms said the deal would result in an additional investment of £11bn in the UK.

But the Competition and Markets Authority's (CMA) deputy chief economic adviser Julie Bon said she had "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."

The regulator is also concerned that the deal may make it more difficult for smaller players such as Sky Mobile and Lyca Mobile - who rent space from the bigger operators - to get a good deal.

But Vodafone's UK chief executive, Ahmed Essam, defended the deal, saying it would allow the companies to create an operator with the scale required to take on the current two biggest network providers in the UK.

Virgin Media O2 has around 24 million mobile customers while EE, which is owned by BT Group, has 20 million users.

Three's UK chief executive, Robert Finnegan, said a merger would "move the UK into the digital fast lane" by allowing increased innovation "benefiting customers from day one".

The issues of price rises for mobile phone contracts - and other aspects of tech - is already firmly in the spotlight, with some already accusing providers of "grossly unfair" increases.

Three and Vodafone have already announced they will introduce a 7.9% increase to the cost of many contracts in April.

That now looks like "an ill-timed move that may not sit well with the competition watchdog," said analyst Kester Mann, from CCS Insight.

However, for the firms themselves the merger makes sense as "scale is key to help lower costs and improve margins," said telecoms analyst Paolo Pescatore.

However, he added that "it could take years before we see the real fruits of this deal" in terms of prices for customers.

"The question is, can the UK wait that long?" he said.