CMA publish replies to provisional rejection of nexfibre’s £2bn UK Netomnia broadband deal

The Competition and Markets Authority has today published the industry responses to their interim report on the proposed £2bn purchase of full fibre broadband network Netomnia (Substantial Group) by the parents of nexfibre and Virgin Media (O2), which was provisionally blocked last month. Nexfibre argues that the third-party responses reinforce concerns that the CMA’s findings relied on speculative assumptions.

Readers may recall that the CMA’s provisional ruling effectively rejected some of nexfibre’s claims and found that the transaction amounted to a relevant merger situation (RMS), which they said was “expected to result in a substantial lessening of competition (SLC) in the wholesale supply of fixed broadband services.” The CMA’s report was perhaps surprisingly tough and left little room for nexfibre to propose potential remedies.

Nexfibre responded to this by describing the CMA’s view as being “fundamentally flawed” and complaining that its “conclusions rely on counterfactuals that do not reflect the commercial and financial reality of the UK fibre market” (i.e. the main counterfactual being the alternative of a merger between Netomnia and CityFibre).

Crucially, nexfibre reached the conclusion that there were no viable remedies that could “address the CMA’s current counterfactuals, and on that basis we have not submitted one“. Instead, the network operator responded by calling on the CMA to effectively review the counterfactual, which they felt would show that CityFibre’s financial situation had changed and the operator may thus struggle to mount a serious bid for Netomnia.

The position had some merit as CityFibre are still in the process of trying to shore up their financial foundations, which among other things included raising c.£900m in equity from shareholders to drive fresh consolidation, albeit at the same time as agreeing a potentially huge c.£2bn write-down on their debts (banks would convert some of their debt into equity). Big questions remain over the viability of this, which has put pressure on CityFibre to show they can deliver.

Rajiv Datta, CEO of nexfibre, said:

“The third-party responses published today speak for themselves. The clear weight of industry opinion reinforces our position that the CMA’s Interim Report is based on highly speculative assumptions that lack evidence and need to be re-examined.

Those counterfactuals were flawed from the outset, and subsequent market developments have further exposed just how untenable they are. CityFibre’s ongoing massive debt restructuring and Virgin Media O2’s decision to halt further fibre investment make the facts increasingly impossible to ignore.

The UK broadband market is too important to get this wrong. The writing is on the wall. The CMA must confront the reality in front of it, rather than condemn the sector to further uncertainty and underinvestment on the basis of counterfantasy.”

As it stands we’re currently awaiting the CMA’s next update, which on the basis of their interim report still seems more likely than not to block nexfibre’s agreement. Despite this, quite a few of the third-party responses to their provisional ruling do echo some of nexfibre’s concerns, albeit not all of them (e.g. CityFibre, obviously). The official responses from nexfibre and Netomnia will follow soon, although they’re unlikely to hold many surprises.

Responses to the interim report

• CityFibre (PDF, 249KB) (6.11.26)
• Community Fibre (PDF, 192KB) (6.11.26)
• Community Fibre and Warburg Pincus (PDF, 244KB) (6.11.26)
• Gigaclear (PDF, 115KB) (6.11.26)
• Grain Connect (PDF, 231KB) (6.11.26)
• Greater Manchester Combined Authority (PDF, 186KB) (6.11.26)
• Third parties (PDF, 206KB) (6.11.26)
• Third party A (PDF, 99KB) (6.11.26)
• Trooli (PDF, 95KB) (6.11.26)

Just by way of a few examples. CommunityFibre complained that the CMA’s Inquiry Group had “underestimated the severe chilling effect that prohibiting market-led consolidation will exert” and “constructed an unviable, multi-layered counterfactual  … none of which reflect prevailing capital market conditions or operational realities.”

Gigaclear said they also had “concerns about the CMA’s underlying analysis“, before warning that it ignored how CityFibre still had not yet secured committed funding for the transaction and that the CMA’s position risked putting a chilling effect on investment in the sector.

Grain Connect similarly expressed their view that the CMA’s counterfactual was “implausible” and pointed to how the “most important dynamic of competition is that between the Altnets and Openreach; competition between the Altnets and each other is secondary.”

Trooli said they remained “neutral on the outcome of the inquiry and expresses no concluded view on whether the statutory substantial lessening of competition test is met“, but they also called upon the CMA to articulate a “clear and stable framework” in their final ruling that “enables investors, before committing capital, to understand the rules governing the credible routes through which UK fibre networks may achieve sustainable scale“.

There’s also a general response from several unnamed “Third parties“, which said they were “surprised by the CMA’s findings in the Interim Report” and called on the regulator to re-visit its counterfactuals. “A hypothetical acquisition of Substantial by CityFibre is by no means secured,” warned the group. But it’s hard to assign much credibility to this particular response while the parties concerned choose to remain anonymous.

The GMCA’s response goes in a different direction and states how they remain of the view that the deal “risks materially weakening infrastructure competition in Greater Manchester. The acquisition would remove Netomnia as an independent network builder and bring it within a group closely aligned with Virgin Media O2, reducing the number of independently controlled full-fibre networks able to compete for wholesale customers, investment opportunities and future deployment.”

Finally, CityFibre largely stuck to its guns, supported the regulator’s provisional view and reiterated how the CMA were already “well aware” of their financial position while conducting the Phase 2 review. “The significant volume of evidence relied upon by the CMA clearly shows that CityFibre would have obtained the necessary funding to acquire Substantial and Substantial’s shareholders were highly motivated to reach terms.” But of course, the best way to show that now is to deliver the necessary financial agreement to show they could support such an investment today.

CityFibre also pointed out that, absent the Transaction, VMO2 still has “clear incentives to continue upgrading its cable network to FTTP“. The catch being that VMO2’s latest results have since stopped that upgrade programme and announced a massive cost cutting drive.

The final decision will ultimately have a big impact across the sector as many other altnets had been anticipating that approval of the nexfibre deal would help to open the floodgates to further market consolidation. But now any agreements between larger players may need to pay much closer attention to the negative competitive impacts of network overbuild between parties.

All eyes remain on the CMA, which will effectively now decide how competition and consolidation will evolve in today’s market. Take note that more responses may be published in the coming days.