By Paul Sandle
LONDON (Reuters) - Vodafone (NASDAQ:VOD)'s $19 billion merger with Three UK could push up bills for millions of mobile customers and impact providers like Sky Mobile by reducing the number of networks from four to three, Britain's competition regulator said on Friday.
However, the Competition and Markets Authority (CMA) also said the deal could improve network quality and speed up the deployment of next generation 5G, adding it would examine solutions to its concerns before making a final decision on the matter in December.
The tie-up, announced 15 months ago between Vodafone and Three UK, owned by Hong Kong's CK Hutchison, has challenged the regulator's previous stance that four networks are required to keep prices low.
Both operators have argued the deal would create a stronger third player that could compete more effectively with market leaders BT's EE and Virgin Media O2.
"We will now consider how Vodafone and Three might address our concerns about the likely impact of the merger on retail and wholesale customers while securing the potential longer-term benefits of the merger, including by guaranteeing future network investments," CMA inquiry chair Stuart McIntosh said.
Vodafone and Three said they disagreed with the CMA's view that the deal raised competition concerns and could lead to price rises for customers.
"This is not a final decision, and we look forward to working with the CMA to secure approval," they said in a joint statement.
The remedies suggested by the CMA included a commitment on network investment, although it said this might not be sufficient on its own to address all of its concerns.
Others included protection for customers, such as allowing them to "roll over" their existing terms for a defined period.
In the wholesale market, it said pre-agreed terms could be made available to third-party providers such as Lyca Mobile, Sky Mobile and Lebara.
Those providers, which use the four major networks, could also have a chunk of the merged company's capacity ring-fenced, it added.
Barclays analysts said the suggested remedies looked "broadly manageable".
Shares in Vodafone were up 0.2% in early deals.