Vodafone Group plc’s push to combine its UK unit with CK Hutchison Holdings Ltd’s Three faces an in-depth investigation, with the country’s antitrust watchdog saying it’s seen little evidence so far to support their claims that the £13 billion deal would help consumers.

The Competition and Markets Authority (CMA) said on Friday it was concerned that the deal creating the country’s largest mobile operator would reduce the rivalry between competitors. It gave Vodafone the standard five-day period to come to an agreement with the agency.

“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,” said Julie Bon, one of the decision maker’s at the regulator.

The deal with the Hong Kong billionaire Li family would see the two smallest of the UK’s four mobile operators combine in the fiercely competitive mobile market. 

Still, regulators have rejected previous attempts to consolidate the market. A previous attempt by Three to buy O2 was blocked by the European watchdog pre-Brexit, which cited one of its main reasons as the reduction of UK mobile network operators from four to three. Vodafone and Three have argued however, that a well-funded operator could better compete domestically in a UK mobile market that is being left behind.

“Vodafone will have to step up its efforts to convince regulators that its deal can bolster network investment,” said Erhan Gurses, a Bloomberg Intelligence telecom industry analyst. “The CMA’s strict stance also suggests unless Vodafone and Hutchison offer strong remedies, the hopes to win an approval will vanish.”

The CMA said the deal could lead to higher prices and reduced quality for customers as well as affecting investment in UK mobile networks. They are also worried the deal may impact smaller virtual mobile networks including Sky Mobile, Lebara and Lyca Mobile. 

For Vodafone, getting approval for the deal is crucial to chief executive officer Margherita Della Valle’s plans to merge or divest from underperforming markets and overhaul a telecoms empire that at one point stretched from the US to Africa. In the UK, mobile users grapple with the slowest data download speeds in the G7.

“By merging our two companies, we will be able to invest £11 billion to help the UK realise its ambitions to be a world leader in next-generation 5G technology, and increase competition across the industry,” said Ahmed Essam, Vodafone UK’s chief executive. 

Vodafone and Three compete against larger rivals BT Group plc and Virgin Media O2 - which is jointly owned by Liberty Global plc and Telefonica SA after they merged their British businesses in 2021. Unlike Vodafone and Three, BT and VMO2 also own fixed networks to sell consumer broadband.

The deal is also expected to draw a review from the UK’s new national security regime, which has the power to veto. The government screens the security implications of deals involving sensitive technologies including telecommunications.

“The combination of our two companies will deliver one of Europe’s most advanced networks and move the UK into the digital fast lane, benefiting customers from Day One,” Robert Finnegan, Three UK chief executive said. 

Three’s executives sought to use the company’s first reported annual loss since 2010 this week to rally support for the deal. The firm blamed the cost of 5G networks, as well as other financial pressures, for its disappointing results and said the deal would help to boost investment.

An in-depth probe takes up to 24 weeks to complete, with the possibility of an additional eight week extension.

  - Bloomberg