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Telecoms companies often face criticism for their pricing practices, and now they have discovered a magic number that could complicate matters further. This discovery comes amid a competition regulators’ inquiry into the planned £15bn merger between Vodafone’s UK mobile business and CK Hutchison’s Three. These companies impose annual price increases linked to inflation, even for customers in the middle of a contract. Consumer groups argue that companies should bear the inflation risk, rather than passing it on to customers. However, the practice remains prevalent, with major mobile operators and even virtual operators implementing inflation plus 3.9% price increases.
In response to concerns about the impact of these price hikes, Ofcom conducted a cost-of-living review, which revealed a low understanding among consumers of in-contract price rises. Ofcom has called on providers to ensure that price increases accurately reflect rising costs. The Competition and Markets Authority, which will assess the Vodafone-Three merger from an antitrust perspective, has stated that there is no direct connection between providers’ costs and inflation rates. Critics argue that the use of identical price increases by numerous companies, including virtual operators, raises competition concerns and could indicate coordinated pricing strategies facilitated by mergers.
Vodafone and Three defend their merger, claiming that the fiercely competitive UK mobile market does not generate sufficient returns to support crucial investments, particularly in 5G networks. The merger would reduce the number of major mobile network operators in the UK from four to three. Previously, regulators resisted similar mergers, but attitudes have softened since the denial of a proposed merger between O2 and Three in 2016. Some see this merger as a test case for the argument that greater market power is necessary to attract higher levels of investment.
While the UK telecoms market has witnessed low prices and increased data demand, there are new competitors in the form of virtual network operators. These operators benefit from discounted wholesale deals with existing network operators, allowing them to undercut retail prices. However, Vodafone, despite its market share, has faced challenges, including underperforming shares and criticism for neglecting core markets and lacking agility.
The investigation by the Competition and Markets Authority takes place in a telecoms market undergoing change and with a focus on price increases. Activist investor Cevian recently divested its stake in Vodafone due to anticipated difficulties in obtaining regulatory approvals amidst changing economic circumstances. The 3.9% price increase is unlikely to alleviate concerns.
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