The proposed £15bn merger between the telecoms companies Vodafone and Three to create the UK’s largest mobile phone operator could the go-ahead if they invest £11bn to upgrade the merged group’s network across the country, the competition watchdog has said.

The Competition and Markets Authority (CMA) said if the pair agreed to the pledge, including the rollout of 5G and short-term customer protections against price rises, it could solve competition concerns identified in September after a five-month investigation.

To protect customers from price rises, the companies will have to commit to retaining certain existing mobile tariffs and data plans for at least three years, including on their sub-brands.

Vodafone and Three said in a joint statement that the announcement “provides a path to final clearance” of their merger. The two companies are the UK’s third and fourth biggest operators respectively and would have more than 27 million subscribers if the merger is completed.

The CMA investigation provisionally found in September that the merger could lead to higher prices for customers and harm the position of mobile virtual network operators, such as Sky Mobile, Lyca, Lebara and iD Mobile, which rely on these networks to run their own services.

Vodafone and Three are two of the four main network operators in the UK, alongside BT/EE and Virgin Media O2.

The pair must commit to pre-agreed prices and contract terms to ensure that mobile virtual network operators can obtain competitive wholesale deals, the CMA said.

Under its proposals, implementing the joint network plan over the next eight years would become a legal obligation overseen by the competition watchdog and the telecoms regulator, Ofcom.

Stuart McIntosh, the chair of the CMA’s independent inquiry group that led the investigation, said: “We believe this deal has the potential to be pro-competitive for the UK mobile sector if our concerns are addressed.

“A legally binding network commitment would boost competition in the longer term and the additional measures would protect consumers and wholesale customers while the network upgrades are being rolled out.”

Vodafone and Three described their proposed merger as a “once-in-a-generation opportunity to transform the UK’s digital infrastructure – which lags significantly behind its European peers – and for more than 50 million UK customers to benefit from a vastly better mobile experience”.

The telecoms companies promised to bring 5G to every school and hospital across the country.

Vodafone and CK Hutchison, the owner of Three, agreed the deal in June 2023. The Unite union has opposed the merger, saying that mobile phone bills could go up by as much as £300.

A final decision on the merger is due before 7 December. Vodafone and Three have until 5pm on 12 November to respond to the CMA.

Vodafone shares rose nearly 2% in early trading, valuing the company at more than £19bn.