Vodafone’s ￡15bn merger with Three risks pushing up prices for tens of millions of mobile customers, the competition watchdog has warned.

Economic research by the Competition and Markets Authority (CMA) is understood to have concluded that mobile bills could rise by between 3pc and 6pc as a result of the deal.

In provisional findings published today, the watchdog also warned that consumers could face poorer services, such as smaller data packages in their contracts.

Vodafone and Three unveiled plans to merge last year in a deal that will create the UK’s largest mobile network with roughly 27m customers.

As well as sparking higher prices, the CMA also raised concerns about the deal’s impact on mobile virtual network operators (MVNOs) – such as Sky Mobile and GiffGaff – which piggyback off larger rivals’ networks.

The CMA said the deal could leave MVNOs less able to secure competitive terms, restricting their ability to offer the best deals to customers.

Vodafone and Three have argued that the tie-up, which would reduce the number of UK mobile network operators from four to three, is necessary to give them the scale to compete with larger rivals EE and VMO2.

The companies have pledged to invest ￡11bn over the next decade and have offered to make legally binding commitments about where this money is spent.

Nevertheless, the CMA said the merger would lead to a substantial lessening of competition in both the retail and wholesale markets.

The watchdog will now consult on its findings and potential remedies, including the option to block the deal. A final decision is expected on Dec 7.

Stuart McIntosh, chairman of the CMA inquiry group leading the investigation, said: “We’ve taken a thorough, considered approach to investigating this merger, weighing up the investment the companies say they will make in enhancing network quality and boosting 5G connectivity against the significant costs to customers and rival virtual networks.

“We will now consider how Vodafone and Three might address our concerns about the likely impact of the merger on retail and wholesale customers while securing the potential longer-term benefits of the merger, including by guaranteeing future network investments.”

Vodafone and Three hit back at the regulator’s findings, saying the merger “can and should be approved”.

Margherita Della Valle, Vodafone’s chief executive, said: “Our merger is a catalyst for change. It’s time to take off the handbrake on the country’s connectivity and build the world-class infrastructure the country deserves.

“We are offering a self-funded plan to propel economic growth and address the UK’s digital divide.”