Vodafone Group plc / Project Telecom plc

OFT closed case: Anticipated acquisition by Vodafone Group plc of Project Telecom plc.

Affected market: Telecommunications

No. ME/1312/03


Vodafone Group plc (Vodafone) is a mobile network operator (MNO) in the UK. It operates at both the network (wholesale) and service provider (retail) level of the mobile communications sector. Project Telecom plc (Project Telecom) is an independent service provider (ISP) of mobile telecommunication services in the UK. Project Telecom's turnover for the year ended 31 December 2002 was £315 million.


Vodafone is seeking to acquire the entire share capital of Project Telecom for £155 million.


As a result of this transaction Vodafone and Project Telecom will cease to be distinct. The UK turnover of Project Telecom exceeds £70 million, so that the turnover test in section 23(1)(b) of the Enterprise Act 2002 (the Act) is satisfied. A relevant merger situation will be created.


The parties overlap in the provision of mobile communication services at retail level (to personal and corporate users). Vodafone, as an MNO, also supplies mobile communication services at the wholesale level to ISPs such as Project Telecom.

Product market

On the demand-side, due to the way in which airtime is sold, it is likely that the supply of mobile telecommunications services to retail and wholesale customers should be considered separately. Retail customers (personal and corporate users) would not, in the event of a price increase by all retail suppliers (including tied service providers (TSPs)), be able to buy directly from an MNO. Project Telecom buys wholesale airtime for resale to mainly corporate, but also personal, customers. Vodafone, through its TSPs, provides mobile telecommunication services to both corporate and personal customers. Of Vodafone's 12.4 million network customers, [1.5 million – 3 million] (see note 1) are serviced through ISPs like Project Telecom. The specific characteristics of mobile telephony mean that customers do not consider land line telephony to be a viable substitute.

On the supply-side, it appears likely that suppliers of mobile telecommunication services to personal customers could quickly and easily switch to provide services to business customers. They would have to bid for contracts that are put out to tender by corporate customers and may have to develop additional services such as conference calling. The parties submit that the range of services offered to corporate and personal customers is similar.

Geographic market

OFTEL maintains that the geographic scope of the market for wholesale mobile telecommunication services is the UK because of a uniform pricing policy and a lack of demand and supply side substitutability from markets outside the UK. It is likely that, for similar reasons, at the retail level the geographic scope is also national.

For the purposes of analysing the competitive constraints on the parties pre- and post-merger the appropriate frame of reference will be taken to be the supply of mobile telecommunication services at the retail level in the UK.


Post-merger at the retail level, Vodafone would have a [15-20 per cent] (see note 1) market share, increment [<5 per cent] (see note 1), by subscriber numbers or [25-30 per cent] (see note 1), increment of 1.3 per cent, by retail revenues. If Vodafone's acquisition of Singlepoint is completed, this would increase Vodafone's share of supply by a further [<5 per cent] (see note 1) by subscriber numbers. Post-merger the parties will face competition from other MNOs as well as a larger number of ISPs.

Barriers to entry

Third parties had mixed views about the costs of entry at retail level. Recently there has been a number of firms entering and exiting the market. BT and Tesco have recently entered into partnership agreements with T-Mobile and O2 respectively to provide mobile services to personal consumers. As a result of this new entry and continued growth of existing ISPs, OFTEL believes that the removal of the requirement on Vodafone and O2 to sell on a non-discriminatory basis to ISPs has not created a barrier to entry. OTFEL has found that while personal customers face some barriers to switching related to number portability and handset unlocking, they have been reduced over time. Vodafone's customer churn is around 30 per cent per annum.

Buyer power

Personal customers are unlikely to have any negotiating strength. One third party thought that corporate customers may have some buyer power as they purchase services through a competitive tendering process and have a number of providers from which to choose.


Vodafone is active as an MNO at the wholesale level and as a TSP at the retail level. Its share of supply at the wholesale level was 29.9 per cent by volume of call minutes and 33.5 per cent by value for the period April 2002 - March 2003. OFTEL considers that no MNO or group of MNO has significant market power. It is therefore highly unlikely that it can leverage its position in the supply of wholesale airtime to influence the supply of airtime to retail customers. ISPs can switch between MNOs, although Orange does not currently supply any ISPs. Moreover, the transaction results in such a small increment to Vodafone's share of supply (at the retail level), even if Vodafone did possess some market power at the wholesale level, the transaction is unlikely to increase the possibility of foreclosure at the retail level.


A number of ISPs are concerned about the transaction, but these related more to wider sectoral issues, in particular, the removal of the requirement on Vodafone and O2 to sell on a non-discriminatory basis to ISPs. MNOs and customers are generally not concerned. OFTEL is unconcerned about the merger because the increment to market share is small and it does not view the decline in the number of ISPs as a concern as there is strong retail competition between the TSPs.


The appropriate frame of reference is taken to be the supply of mobile telecommunications services at the retail level in the UK. Post-merger, the parties will have a combined market share of [15-20 per cent] (see note 1), increment [<5 per cent] (see note 1), based on subscriber numbers or [25-30 per cent] (see note 1), increment 1.3 per cent, based on retail revenues. The merged entity will continue face competition from around 50 other ISPs and the other MNOs. Entry barriers do not appear to be insurmountable as there have been a number of recent new entrants. Given that OFTEL has concluded that Vodafone (either singly or as part of a group) does not have significant market power and the increment to its share of supply of retail services is small, the transaction does not appear to raise any vertical competition concerns.


This merger will therefore not be referred to the Competition Commission under section 33(1) of the Act.


  1. Figures replaced by a range at the request of Vodafone.
Published 17 September 2003