BT, Sky, Grain and Hyperoptic Comment on Nexfibre’s £2bn Move to Buy Netomnia

The UK Competition and Markets Authority (CMA) recently published several responses from BT (Openreach), Grain Connect, Sky Broadband and Hyperoptic to the ‘Areas of Focus’ document for their Phase 2 competition investigation of Netomnia’s proposed £2bn acquisition by the parents of Virgin Media (O2) and nexfibre. The early feedback provides some useful market perspective.

Just to recap. The owners of nexfibre, which share some of their parentage with Virgin Media and O2, announced earlier this year that they’d reached a £2bn deal to acquire alternative network rival Netomnia (here), which has more recently been fast-tracked into a deeper Phase 2 competition review (here).

Netomnia’s full fibre broadband (FTTP) network currently covers around 3.2 million UK premises (inc. 500,000 customers). But nexfibre said the combined network footprint would reach 8m premises (FTTP) by the end of 2027, which when combined with Virgin Media could collectively reach 20m premises (c.10m if only looking at FTTP) and create a “scaled, financially secure challenger” to Openreach (BT Group).

However, critics of the deal, particularly Simon Holden, CEO of CityFibre, which had also been trying to acquire Netomnia before the nexfibre move was announced, have some reservations. According to Holden, the proposed agreement would “significantly reduce competition and the choice available to consumers, as well as force hundreds of thousands of Netomnia customers back to VMO2”.

A number of other network operators and retail ISPs have since provided some feedback on the agreement, albeit in response to the CMA’s earlier ‘Areas of Focus‘ document that sets out the scope of the inquiry (note: business wholesale is out of scope). The responses largely reflect somewhat of a vested interest sandwich, which is to be expected, but they do still provide some extra insight from different quarters of the market.

Sky’s Response (PDF)

Sky noted that as a major broadband ISP they depend entirely on wholesale local access from third-party networks and thus have a “unique perspective on the likely effects” of the deal. Sky currently only sells broadband packages via Openreach and CityFibre’s networks.

Sky broadly made the point that nexfibre and Virgin Media’s (O2) gigabit-capable broadband networks should be assessed as a “single economic entity for the purposes of its competitive assessment“, which they said partly reflects how nexfibre has “no independent engineering capability (it has fewer than 50 employees, all in corporate roles), no wholesale systems, and no operational capability to build or operate its network independently; its network build and wholesale activities rely entirely on VMO2.”

The provider added that, in areas where Netomnia’s network overlaps with VMO2 (approximately 80% of Netomnia’s footprint), the Transaction “reduces the number of infrastructure competitors from three (Openreach, VMO2 and Netomnia) to two (Openreach and the combined VMO2 / nexfibre / Netomnia entity).” Sky added it “does not consider that the Transaction will create a more effective challenger to Openreach capable of delivering stronger retail competition” and warns that the “reduction in wholesale competition resulting from the Transaction weakens the competitive pressure.”

Sky said the consolidating parties should also demonstrate that any claimed acceleration in fibre rollout or fibre take-up is merger specific. “VMO2 / nexfibre already has a lower-cost route to achieving that outcome by completing the upgrade of its existing [coax] network [to FTTP], without removing an independent competitor … In any event, to the extent that there are any incremental benefits, they are already available in the counterfactual where customers can buy FTTP from Netomnia,” said Sky.

Hyperoptic’s Response (PDF)

As one of the UK’s largest alternative networks, Hyperoptic kept their response short and said they “[do] not currently identify competition concerns that would lead us to oppose the proposed transaction and considers it has the potential to support a stronger and more sustainable alternative fibre platform, which may contribute positively to the long-term competitive structure of the market and the continued development of infrastructure-based competition in the UK.”

Naturally Hyperoptic may be considering doing some consolidating of their own in the future, or being consolidated by another provider, which may thus be considered as forming part of the context for their interest in the CMA’s review (i.e. they might not want to end up creating any roadblocks that could be used against their own merger attempts in the future, should any come to pass).

BT Group’s Response (PDF)

BT’s response could perhaps be seen as coming more from the perspective of their “legally separate” network access business, Openreach, which is obviously the market incumbent for consumer wholesale broadband infrastructure and products.

On this point BT focuses quite a bit on the pro-competition arguments of the acquisition and how a material share of wholesale cost savings from the deal are “expected to be passed through to end consumers in the form of lower retail prices“, which they predictably say is open to question.

“This presupposes that there will be effective dynamic competition between the merged entity and Openreach, such that the Parties are incentivised to pass any efficiency gains on to their end customers,” which BT disputes due to the regulation they face from Ofcom that hinders their ability to respond.

Extract from BT’s CMA Response

The regulatory constraints on Openreach’s ability to compete mean that the full benefits of that competition will be limited. Today, ex ante regulation does constrain competition, in both the speed of competitive response and the types of response, notwithstanding requests for support from Openreach’s customers.

Notably:

a. Openreach is not able to offer lower prices in areas of greater competitive intensity, without Ofcom’s consent – and, as noted above, Ofcom applies a stricter (REO) cost standard than would apply under competition law, limiting the depth of discounts Openreach may offer.

b. Openreach cannot offer bundles of services or put in place offers which are conditional on the volumes of orders placed, without notifying them to Ofcom.

c. Openreach must notify offers publicly on up to four months’ notice, reducing speed to market and providing an opportunity for its competitors to respond ahead of an offer taking effect.

Broadly BT sometimes seems to be arguing more against Ofcom’s regulation, which exists partly to limit Openreach’s ability to pressure new entrants out of the market, rather than the Netomnia consolidation itself. At the same time they appear to indicate that the deal might require Ofcom to review how Openreach is regulated in some areas (i.e. potentially softening the rules).

Grain Connect’s Response (PDF)

Grain, speaking as a relatively small alternative network that covers 300,000 UK premises with full fibre broadband and connects 56,000 customers, broadly seemed to follow a similar line to Hyperoptic and probably for much the same reason. In Grain’s view, the “most likely route to a third scale wholesale fibre broadband operator” is the combination arising from the Netomnia and nexfibre merger, but they don’t agree that it will result in lower retail prices.

“We broadly agree with the parties’ submission that the combination will enhance wholesale competition. However, we do not think it will lead to reduction in retail prices, for the simple reason that retail competition at present is already as intense as it has ever been, driven by major ISPs’ responses to alternative network competition in general,” said Grain.

Interestingly Grain also expressed its view that a footprint of at least 1 million premises ready for service (RFS), extensive geographic reach and business operations (networks, systems and services) consistently delivering service performance to mass retail market standards (i.e. at least as good as Openreach) are required to be a “credible wholesale provider” today.

The CMA has until the statutory deadline of 15th December 2026 to reach a conclusion on the proposed acquisition.