Why Europe’s merger rules must recognise the value of scale

Europe’s merger rules should protect competition. But competition is shaped by more than the number of companies in a market, or the prices consumers pay today.

In capital-intensive industries such as telecommunications, competition also depends on whether those companies can invest, improve quality, deploy new technology and keep challenging each other.

The European Commission’s draft Merger Guidelines recognise this changing reality. Described as the broadest change in EU merger policy for two decades, the Commission has said the final framework should be predictable and evidence-based, while capable of reflecting new market realities.¹

If it keeps this promise, merger assessments must examine potential benefits and potential harms together, applying the same rigour to each. If it doesn’t, Europe will have modernised the language of merger control without changing how decisions are made.

Competition should be about outcomes

Merger debates often boil down to the proposition that fewer companies will mean less competition.

That may sound intuitive. Short-term prices and current market shares remain relevant. But in telecoms, relying too heavily on them can overlook one of the most important possible merger outcomes: the creation of a stronger challenger with the ability and incentive to invest.

Mobile is a highly capital-intensive business. Networks have high fixed and sunk costs. Spectrum licences must be acquired – and are usually paid for – upfront. Thousands of sites nationwide must be set up and operated, and capacity upgraded through successive technology cycles. On top of this, operators must ensure their networks are highly secure and resilient.

Much of that expenditure is required irrespective of whether an operator serves five million customers or fifteen million. A larger customer base can allow those costs to be recovered across more users, improving the economics of each network upgrade.

Resilience also depends on scale. Operators must invest continuously in network redundancy and security to withstand disruption and recover from it. The value of that investment may only become fully visible during a crisis. Spreading these costs across a larger customer base can strengthen both the capacity and the incentive to invest, making networks more dependable as well as more competitive.

But a sub-scale operator must also fund many of the same investments from a smaller revenue base, even as demands for more data and higher quality connections continue to rise.

A July 2026 study by GSMA Intelligence found that European three-player mobile markets had invested around 48 per cent more per connection than four-player markets since 2016. They also recorded faster networks and greater 5G coverage, without evidence of higher consumer prices.²

The study also found that consolidation events were associated with capital-expenditure increases of 28 to 38 per cent and network-speed improvements of around 25 per cent.²

While these findings don’t necessarily show that every merger is beneficial, they highlight that operator numbers alone cannot determine whether a market will deliver stronger investment and better quality.

An operator can remain present in a market while lacking the scale to finance the next network upgrade and compete sustainably over time.

Preserving that market structure may protect the appearance of competition while weakening the investment competition that determines future quality, coverage and value.

The UK shows why dynamic competition matters

The merger of Vodafone UK and Three UK provides a substantial, real-world example of what greater scale can deliver.

Before the merger, both businesses argued that they lacked the scale to invest and compete consistently with the UK’s two larger mobile operators. The combination brought together their spectrum, sites and customer bases, alongside a commitment to invest £11 billion over ten years in the combined network.³

A report by Frontier Economics, commissioned by Vodafone and published one year after the businesses combined, found that average 5G download speeds had increased by 38 per cent. More than 16,500 square kilometres of previous not spots had been eliminated.⁴

On top of this, spectrum integration across approximately 15,000 sites had increased average 4G speeds by 20 per cent for more than seven million customers.⁴

The VodafoneThree merger shows why quality, capacity and coverage are material consumer outcomes. Its early results demonstrate how combining complementary assets can strengthen an operator’s ability to compete and improve the service received by its customers. A stronger challenger can, in turn, increase competitive pressure across the market.

Consumer welfare is about more than just price

Consumers care about the price of their connectivity services. But they also care about whether calls connect, data works on a train, rural areas have coverage and networks remain resilient during disruption.

Merger assessments should therefore give meaningful weight to coverage, capacity, reliability, security and innovation.

The same basic evidential discipline should apply in both directions. Benefits should be merger-specific, verifiable and capable of reaching consumers. Future harms and future benefits should be tested against the same standard of evidence. Authorities should not treat uncertainty as acceptable in one direction while demanding near-certainty in the other.

The Commission’s more developed ‘theory of benefit’ recognises dynamic efficiencies that can strengthen investment and innovation, even where benefits take longer to emerge.⁵

Authorities assessing future investment harm should equally consider merger-enabled investment over the same period. Network integration can eliminate duplication, combine complementary assets and spread fixed costs, creating capacity to invest in coverage, security, resilience and new technology.

Time horizons must reflect economic reality

Modern networks don’t spring up instantly. Spectrum awards, planning consent, network integration, equipment replacement and technology upgrades all take place over several years, with consumer benefits building progressively.

The Commission’s merger review consultation is right to recognise a category of dynamic efficiencies whose investment and innovation benefits may emerge over a longer timeframe.⁵

And the Commission’s August 2026 economic study on the dynamic effects of mergers examined how merger assessments can account for dynamic harms and benefits that emerge over time.⁶

A longer appraisal period should use a timeframe appropriate to the market and assess both harm and benefit against consistent assumptions.

In infrastructure markets, that period should reflect deployment cycles, phased integration and the time required for investment to improve coverage, capacity and service quality.

Otherwise, merger analysis contains an in-built imbalance. Immediate and easily modelled effects will dominate benefits that may be equally real but follow the investment cycle of the sector.

In-country scale is real scale

The scale debate in telecoms often focuses on cross-border consolidation or creating companies able to compete globally. Those forms of scale can be valuable.

But telecoms networks are largely built and operated within national markets. And this means spectrum auctions and licences, radio sites, coverage obligations, network capacity and resilience investment are principally organised country-by-country.

A mobile site in one member state cannot provide mobile coverage in another. And a larger cross-border customer base can’t resolve insufficient scale in the national network where the investment must be made.

In mobile, the radio access network accounts for most of an operator’s network costs. Vodafone estimates that around 80 per cent of mobile network costs relate to the radio network, making much of the investment case inherently local.

GSMA Intelligence has also described Europe as the least concentrated major mobile region, finding that markets with greater national operator scale invest more per connection, deliver stronger network performance and show no evidence of higher prices.²

The revised guidelines should therefore recognise in-country scale where the evidence shows that it improves an operator’s ability and incentive to invest, while preserving effective competition.

Cross-border scale and national scale should each be assessed according to where costs arise, where assets can be combined and where consumer benefits are delivered.

Four foundational pillars for a modern merger framework

Europe’s revised merger framework should be built on four foundational pillars:

• First, assess quality as well as price. Coverage, capacity, reliability, security, innovation and resilience are recognised dimensions of competition and should carry genuine weight in the assessment.
• Second, apply symmetrical scrutiny to harm and benefit. Efficiencies must be evidenced, merger-specific and beneficial to consumers. But they should not face stronger evidential or temporal hurdles than prospective theories of harm.
• Third, match the assessment period to the market. Dynamic efficiencies should be assessed over the investment and deployment cycle in which the claimed consumer benefits would actually arise.
• Fourth, recognise the competitive value of in-country scale. Where costs, assets and investments are national, the relevant scale benefits must also be examined at national level.

These principles don’t create an automatic presumption in favour of consolidation. They would help Europe distinguish more accurately between mergers that diminish competition and those that strengthen it.

The early UK evidence shows why that distinction matters. Scale can create a stronger challenger, accelerate network improvements and improve the service consumers receive. The wider European evidence indicates that greater operator scale can support higher investment and better network performance without necessarily increasing prices.

Europe’s merger rules should continue to prevent companies becoming too powerful. But they should not be designed to prevent them becoming strong enough to compete.

FOOTNOTES

1: Review of the Merger Guidelines – European Commission (Apr 2026) – European Commission merger guidelines review

2: Efficient operator scale in European mobile markets – GSMA Intelligence (Jul 2026) – GSMA Intelligence report on efficient operator scale

3: Completion of Vodafone and Three merger in the UK – Vodafone (Jun 2025) – VodafoneThree merger completion announcement

4: New independent report finds VodafoneThree merger delivering greater value, wider coverage and faster networks – Vodafone, reporting Frontier Economics findings (Jul 2026) – Vodafone summary of the Frontier Economics report

5: Draft Guidelines on the assessment of mergers under the EU Merger Regulation – European Commission (Apr 2026) – European Commission draft Merger Guidelines

6: Economic study on the dynamic effects of mergers, Volume 1 – European Commission and Oxera (Aug 2026) – European Commission study on dynamic merger effects