UK watchdog backs CityFibre takeover of Netomnia over $2.7 billion Nexfibre deal

By Paul Sandle

LONDON, Oct 2 (Reuters) - Britain's Competition and Markets Authority said on Friday that Nexfibre's proposed acquisition of Netomnia could substantially reduce competition, adding that it would have preferred that CityFibre was buying the fibre broadband operator instead.

Nexfibre, a joint venture backed by Liberty Global, Telefonica and InfraVia, agreed to buy the owner of Netomnia, the country's second-largest "altnet" fibre network, for £2 billion ($2.7 billion) in February. 

The CMA said it believed CityFibre would most likely have bought Netomnia had Nexfibre not struck its deal.

CityFibre, which was reported to have made an offer for Netomnia, said the proposed deal would significantly reduce competition and called on the CMA to prevent it proceeding. 

"After recognising that harm, it is vital that the CMA takes the next step and blocks the deal," a spokesperson said.

Nexfibre said the CMA's findings did not reflect the reality of Britain's fibre market and its CEO Rajiv Datta told Reuters that the CMA had outlined a "counter-fantasy" to its deal.

The CMA had failed to prioritise the fibre investment Britain needed and the creation of a scaled, sustainable challenger, he said, to market leader BT's Openreach.

"This is a transaction that is fully financed, that is ready to go," he said in an interview. "It seems that they are considering something that is not real."

CMA DECISION ON DECEMBER 15

Nexfibre's proposed deal would add more than 3.4 million premises and over 500,000 customers to its UK footprint, taking its expected total to 8 million premises by the end of 2027.

Combined with Virgin Media O2, also owned by Liberty and Telefonica, the group would have access to 20 million premises over time, compared with 25 million for BT's Openreach network.

The CMA said a CityFibre-Netomnia combination would have created a stronger challenger to the Openreach network and to the enlarged Nexfibre/Virgin Media O2 business.

CityFibre could wholesale Netomnia's network to existing customers including Sky and Vodafone, while Nexfibre and Virgin Media O2 would continue upgrading Virgin Media O2's cable network to full fibre, the CMA said.

Analyst Karen Egan at Enders Analysis said the deal could be called off before the final CMA decision on December 15, "unless Nexfibre/ Netomnia still believe that there is a sufficient chink of hope that is worth holding on".

Datta said Nexfibre would consider the CMA report before deciding its next steps. It can submit remedies by October 16.

(Reporting by Paul Sandle in London and Raechel Thankam Job in Bengaluru; Editing by Mrigank Dhaniwala, Sarah Young and Alexander Smith)