Virgin Media O2 owners push CMA to reconsider £2bn broadband deal
Liberty Global and Telefónica argue that BT’s acquisition of TalkTalk has materially changed competition in the UK market
Virgin Media O2’s shareholders are lobbying the UK’s antitrust watchdog to re-evaluate their £2bn acquisition of the country’s fourth-largest broadband network after the UK government gave special dispensation for market leader BT to buy rival TalkTalk.
Liberty Global and Telefónica have written to the Competition and Markets Authority to request a supplementary interim report on the proposed acquisition of Netomnia by Nexfibre, a broadband provider they jointly own alongside InfraVia Capital, according to people familiar with the matter.
The move comes after the original interim report by the CMA earlier this month found the deal could “result in a substantial lessening of competition” in the wholesale supply of fixed broadband services due to the overlap between the companies’ existing networks.
However, just days after the initial findings, the UK’s largest broadband provider BT announced a deal to acquire heavily indebted rival TalkTalk, which regulators feared was on the verge of insolvency.
Culture secretary Lisa Nandy invoked an emergency protocol enabling her to override antitrust concerns on the basis that disruption to TalkTalk’s services posed a “genuine risk to life and public services”.
The decision was met with fury by Virgin Media O2, whose chief executive Lutz Schüler branded the contrast between the two approaches as “perverse”. VMO2 is seeking to convince the CMA that BT’s swoop on TalkTalk — which has 2.5mn customers — has materially changed the market, the people added.
A Netomnia-Nexfibre combination would create an 8mn-home fibre network. BT’s Openreach serves nearly 25mn homes with fibre broadband, while its retail division has 30 per cent market share, according to estimates from Enders Analysis.
VMO2’s shareholders have also argued that Goldman Sachs-backed CityFibre, the operator named by the CMA as the likely alternative buyer of Netomnia, lacks the finances to make a counter-offer.
CityFibre is negotiating a refinancing in which its shareholders are pledging £900mn in new funding in exchange for lenders taking a haircut on their loans. The company has £3.9bn in net debt and made a £545mn pre-tax loss last year.
The CMA can issue supplementary interim reports when new evidence is presented or further analysis reveals new information about a case.
Recent examples include the acquisition of bread maker Hovis by Associated British Foods earlier this year. After the CMA provisionally found that the deal would reduce competition in Northern Ireland, ABF provided additional financial information that prompted a supplementary review that found that it would not. The deal completed on July 8.
The CMA said it was inviting feedback on its interim report and “a final decision will be made once any views received have been assessed”.
CityFibre said: “The CMA has already examined CityFibre in detail and is well aware of our financial position, our intention to recapitalise and of the new £900mn contribution from our shareholders. All that evidence is already reflected in the CMA’s Interim Report.
“Over recent years, CityFibre has invested some £7bn in the UK fibre market and the company expects to invest a further £5bn by 2040. This is on the basis of a clear and consistent regulatory policy, and a robust and independent competition regime.”
Liberty Global, Telefónica, InfraVia and Nexfibre declined to comment.