Britain's competition watchdog is concerned that the proposed merger between Vodafone and Three UK could lead to higher bills for customers, a view rejected by the companies who see it as a chance to transform the local mobile market with new investment.

The Competition and Markets Authority (CMA) has published its preliminary view on the merger of the UK's third and fourth largest mobile operators. It fears the consolidation would lead to price increases for tens of millions of users, and possibly reduced service, such as smaller data allowances in contracts.

In its guidance, the CMA also said the merger could affect Mobile Virtual Network Operators (MVNOs) such as Lyca Mobile, Sky Mobile and Lebara, which rely on the companies for infrastructure to run their own services. As the merger would reduce the number of network operators from 4 to 3, this may make it more difficult for them to secure competitive terms.

The watchdog was similarly skeptical of claims that the move, announced last year, would improve the quality of mobile networks. The CMA said it "considers these claims to be exaggerated", and that the post-merger companies would not necessarily have an incentive to follow through on their proposed investment programme.