Interview
The Competition and Markets Authority’s (CMA) in-depth investigation into the proposed £2 billion merger of Netomnia and nexfibre has become one of the most significant competition cases in the UK’s telecoms sector in recent years.
Last month, the regulator confirmed it would fast-track the deal directly to a Phase 2 investigation, bypassing the initial Phase 1 review. The decision reflects the scale of a transaction that could reshape the UK’s altnet market and accelerate long-awaited consolidation.
With the investigation now well underway, Netomnia CEO Jeremy Chelot insists the merger is a necessity for securing long-term viability of the UK’s fibre market.
Consolidation is inevitable
Chelot explained the transaction was driven by the realities of the UK’s increasingly challenging altnet landscape rather than by a deliberate preference for nexfibre.
“It was not so much a choice. It was the fact that the UK market clearly needs consolidation,” he said.
According to Chelot, Netomnia had spent years exploring alternative consolidation opportunities, all of which had ultimately failed.
“We looked at quite a few players and tried to acquire companies to consolidate, and unfortunately, we failed at it. We also looked at opportunities to merge or be acquired by players bigger than us. Through those processes, Nexfibre was the only viable option from a valuation, capital, and overall perspective,” he said.
Despite the increasing pressure facing the sector, Chelot said the objective has remained unchanged since the UK’s fibre challengers first emerged.
“The goal since the beginning—and I think that’s what all the altnets had as an ambition when they started, whether you talk to CityFibre, Community Fibre, or us—was always to become a challenger and beat Openreach,” he said.
Phase 2: The sooner the better
Regarding the decision to request a move directly to Phase 2 of the CMA’s investigation, Chelot said that a swift conclusion was important not only for the deal’s viability, but also to reduce market uncertainty.
“This is a landmark, important transaction for the UK that will shape the future of broadband and telecom in the country,” he said. “If you do a Phase 1 investigation and end up going into Phase 2, you’re talking about a process that could last 18 months. Whereas if you fast-track it immediately, the process is going to be a lot shorter, giving additional time for the CMA and Ofcom to investigate thoroughly and address the important issues.”
Overcoming competition concerns
The merger has faced criticism from rival altnets, most notably CityFibre, which has raised concerns about the impact on competition and re-establishing a duopoly of BT and Virgin Media O2 (VMO2).
Chelot, however, argued that CityFibre’s comments in a recent article in The Times undermine their objections around competition.
“CityFibre was saying that they would consider being acquired by nexfibre or VMO2, but they would rather get the VMO2 traffic onto their platform. If CityFibre says that, they’re basically saying that my transaction is completely fine, because they are saying that having VMO2 traffic on their network, or being acquired by Nexfibre or VMO2, is a good [competitive] outcome,” he said.
He also downplayed concerns around network overlap between Netomnia and nexfibre, saying that fibre duplication between the two networks is limited to “a low double-digit number.”
Instead, he believes the merged business presents little risk to competition because neither Netomnia, nexfibre nor VMO2 is currently a significant wholesale provider to the UK’s largest broadband retailers. He also notes that YouFibre will remain an independent brand, hence retail competition will not be reduced.
“From where I stand, I don’t really understand where the issue is,” he said. “I’m not wholesale, VMO2 is not wholesale, and Nexfibre is not wholesale – we don’t have Sky, Vodafone, or those larger players. So, we would be increasing wholesale competition. If you look at retail, YouFibre is still there, and with a new wholesale platform, retail ISPs using that platform will become more competitive, resulting in better pricing for people.”
“The main issue is that CityFibre is just not happy, and therefore, they make a lot of noise,” he added.
The CMA’s ‘what if?’
A central consideration for the CMA will be establishing the counterfactual – what would happen had if the merger does not take place?
Chelot argues that Netomnia’s options were increasingly limited.
“Could we build a lot more homes? Where is the capital for that? Would we be a successful wholesaler with Sky and Vodafone? I tried for five years and got nowhere. Would we have merged with another altnet? I’ve been trying for years and was unsuccessful,” he said.
Commenting on these failed deals, Chelot pointed to the inherent complexity of these network deals.
“As soon as you try to [merge with an altnet with] half a million, a million, or more [premises passed], you’re most likely going to have to live with the shareholder on the other side for a very long time. That brings lots of governance issues, valuation challenges, and complicated processes.”
Funding constraints have only made those challenges more acute across the sector, with many altnets being forced to slow or even halt their deployment plans as a result.
“Finding capital to build more homes and generating the right level of return on those homes is currently next to impossible,” he said.
Building a more competitive future
Indeed, Chelot believes approval of the merger is crucial unlock a wave of consolidation that is sorely needed.
“It will signal strongly that consolidation is possible in the UK. Let’s be clear, a lot of the consolidation that’s happened so far has been out of problems or stress, rather than combining two companies that actually think it’s the right path for growth,” he said.
“I think it will spark more consolidation. We’ve seen recently that Community Fibre and Hyperoptic are up for sale. My view is that CityFibre will consolidate more – I think they will get to 8 million homes, maybe more, and to achieve that they’ll need to consolidate 3–6 players,” he added.
Speculating about the future of the UK market at the end of the decade, Chelot said the market will ultimately be dominated by four national fixed-network operators.
“I think we’ll likely have four players with national scale, with at least 8–10 million each or more: Openreach, VMO2, nexfibre, and CityFibre,” he said. “Depending on consolidation, there could even be a fifth player – maybe some kind of rural champion.”
Until this rebalancing of the market, Chelot says the altnet community must not lose focus of their original goal of competing with Openreach.
“People should talk more about the dominance of BT and Openreach. In the past 6–7 year have rolled out fibre to 25 million homes, which is more than everybody else. People sometimes think that, because the altnets occupy so much of the space it is like we won against Openreach. The fight is very much alive,” he said.
“All of the altnets were created out of a desire to challenge Openreach. Anything that gets us closer to that is a good thing,” he concluded.
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