Summary

  • The CMA provisionally finds that nexfibre’s proposed acquisition of Substantial could weaken wholesale competition across overlapping fibre footprints.
  • Its decisive comparison is not simply “deal versus no deal”: the regulator provisionally expects CityFibre to have bought Substantial and wholesaled its network to existing ISP customers.

The fibre merger’s most consequential competitor may be the one that never completes a purchase. In its interim report on nexfibre’s proposed acquisition of Substantial, the Competition and Markets Authority (CMA) provisionally treats CityFibre as the likely alternative buyer. That choice changes the market map against which the deal is judged.

The report, published in October, is not a final decision. The CMA invited responses to its provisional findings by 23 October, with the Phase 2 inquiry due to conclude by 15 December. But the reasoning already shows why acquisition reviews can turn on an unseen branch in a sale process: who would operate the assets if the announced buyer were absent?

A sale process with two plausible paths

Substantial includes the Netomnia and Brsk fibre networks and the YouFibre retail business. The CMA says the 2025 sale process attracted bids from nexfibre and CityFibre. It considered whether Substantial would remain independent or be acquired by CityFibre, looking at financing, negotiations, willingness to sell and the terms its shareholders could accept. Its provisional view is that CityFibre was the more likely buyer in the no-deal counterfactual.

That is a judgment about a possible alternative, not a claim that CityFibre bought the company or that a binding sale agreement existed. The distinction matters because the two paths would produce different wholesale competitors. Substantial had no wholesale customers at the time of the report and competed in retail through YouFibre. The CMA expects CityFibre, if it acquired the network, to sell YouFibre to another ISP and offer wholesale access to its existing ISP customers.

The merger parties tell the opposite strategic story. They say combining Substantial with nexfibre and VMO2 could create a larger, more sustainable wholesale challenger to Openreach, bring forward VMO2’s cable-to-fibre upgrades and support additional investment. The CMA accepts that some scale and transaction-specific upgrades could result. It provisionally judges that the scale increment is relatively small because VMO2 was already expected to upgrade its cable network, and says the parties supplied limited evidence that the deal itself would make ISPs more willing to contract with VMO2/nexfibre.

The overlap is a competition mechanism

The CMA’s analysis is about wholesale fixed broadband within the parties’ combined fibre footprint. It treats Openreach as present across the VMO2/nexfibre network; Substantial overlaps about 14% of that footprint and CityFibre about 18%, with little overlap between Substantial and CityFibre.

Under the CMA’s provisional alternative, CityFibre would absorb Substantial and all three wholesalers—Openreach, VMO2/nexfibre and CityFibre—would be present in areas representing about 32% of the VMO2/nexfibre footprint. With the proposed acquisition, the CMA says the three-way overlap falls to about 18%. This is not a count of homes receiving service or a forecast of a particular price increase. It is the regulator’s estimate of where one independent wholesale constraint would be removed relative to its counterfactual.

The mechanism is more subtle than adding two fibre maps together. In overlapping areas, a rival can threaten to win an ISP’s volumes. The CMA says wholesale prices and other terms are often set across a provider’s footprint, so local overlap can affect negotiations beyond the streets where two networks meet. It calls CityFibre a vigorous wholesaler, citing agreements with Tier 1 and Tier 2 ISPs and their assessment of its price, speed and reliability. The authority considers Openreach important but constrained by regulation, while smaller altnets may lack the scale to replace the lost constraint.

The parties’ claimed benefit—a stronger combined platform—therefore meets a specific test: would it create wholesale deals and competition that would not otherwise exist? The CMA’s answer is provisionally no. It thinks CityFibre would have offered the Substantial network to its existing ISP customers anyway. Scale that comes from a transaction is not automatically a merger-specific efficiency if the alternative buyer could deliver the same wholesale access.

What the report cannot settle yet

The result turns on uncertain future conduct. The CMA says the counterfactual is inherently uncertain and that Substantial could have continued alone. Its interim findings rely on internal documents, financial material, bids, negotiations and submissions from operators and ISPs; some commercially sensitive evidence is withheld or shown only as a range. The CMA also says its conclusions concern this transaction and its specific network overlap, not consolidation across the altnet sector as a whole.

Nor does the provisional finding establish that consumers have already paid more, that CityFibre would certainly have won, or that every merger among fibre builders reduces competition. The final decision may change after representations and any remedies process. The useful question for operators and investors is narrower: which buyer would have been able to bring the assets into a wholesale market, with which customers, and on what evidence?

This is also a useful discipline for reading strategic claims. A promise to become a stronger challenger is not itself proof of a wholesale offer, customer commitment or lower retail price. The CMA’s analysis asks which rival could operate the network and transact with ISPs on the path that did not occur. That distinction echoes Heng Lu’s Note 64 as an editorial lens on adoption and operating evidence; it says nothing about the legal test or the facts of this merger.

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