The £16.5bn merger between Vodafone and Three could result in higher bills for tens of millions of customers, the Competition and Markets Authority (CMA) has said.

The regulator has stated that the deal could result in an improvement in the quality of mobile networks and bring forward the deployment of 5G networks and services, creating the UK’s largest mobile operator.

However, the CMA added that it would "negatively impact wholesale telecoms customers", which include mobile virtual network operators (MVNOs) such as Lyca Mobile, Sky Mobile and Lebara, which rely on the existing network operators to provide their own mobile services.

Should the merger go ahead, it would reduce the number of network operators from four to three, making it more difficult for MVNOs to secure competitive terms, restricting their ability to offer the best deals to retail customers.

The CMA stated that it has particular concerns that higher bills or reduced services would negatively affect their customers least able to afford mobile services, as well as those who might have to pay more for improvements in network quality they do not value.

The regulator has said that it will now explore potential solutions to its concerns, before delivering its final decision on the merger by 7 December.

Chair of the CMA enquiry group, Stuart McIntosh, said: "We’ve taken a thorough, considered approach to investigating this merger, weighing up the investment the companies say they will make in enhancing network quality and boosting 5G connectivity against the significant costs to customers and rival virtual networks.

"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."

In a statement, Vodafone and Three have said they disagree with a "number of elements" of the provisional findings, but added that it would continue to engage with the CMA and would look to resolve outstanding matters.

Chief executive at Vodafone, Margherita Della Valle, added: "Our merger is a catalyst for change. It's time to take off the handbrake on the country's connectivity and build the world-class infrastructure the country deserves. We are offering a self-funded plan to propel economic growth and address the UK's digital divide.

"Great network connectivity is a critical enabler of so many elements of our daily life and is central to the future prospects of so many sectors. Businesses large and small are dependent on it and it enables new industries - like AI - to thrive. It facilitates a step change in productivity and care across the public sector, and it lies at the heart of every nation's future prosperity."

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