Summary

  • The CMA’s interim report provisionally treats a CityFibre acquisition of Substantial, followed by a sale of its retail businesses, as the most likely alternative to the proposed nexfibre transaction.
  • That buyer changes the wholesale map: the CMA’s future overlap model compares different network footprints, and its 31.9% and 17.7% figures do not share an unchanged denominator.

The most consequential buyer in the Competition and Markets Authority’s interim report is the one that did not acquire Substantial. The CMA’s provisional view is that, without nexfibre’s proposed transaction, CityFibre would most likely have bought the group and later sold its retail businesses to another internet service provider. That is a different market from one in which Substantial simply continues unchanged.

The distinction gives the CMA a specific counterfactual: the conditions of competition it expects without the transaction. It is not a claim that CityFibre completed a purchase, had an unconditional financing package, or was certain to win. The sale process involved both CityFibre and nexfibre. The CMA says the parties’ financial evidence, their incentives to reach a deal and CityFibre’s financing options make a CityFibre acquisition the most likely path. The conclusion is provisional and the report describes the exercise as inherently uncertain.

A rival buyer changes the operating model

Substantial includes the Netomnia and Brsk fibre networks and retail operations including YouFibre. In the CMA’s CityFibre scenario, the network would become part of a wholesale platform serving CityFibre’s existing ISP customers, while the retail businesses would be sold to a third party. A standalone Substantial, by contrast, would retain its retail arm and could also have wholesale capability.

Those routes matter because access networks and retail providers occupy different places in the supply chain. A fibre owner can sell capacity to several ISPs; an ISP packages that access with billing, support, equipment and a customer relationship. If the same network is controlled by a different owner, the physical cable in the ground may stay put while the set of parties able to negotiate wholesale terms changes.

The transaction being assessed also separates assets. Under the framework described by the CMA, nexfibre would retain Netomnia and Brsk last-mile network assets. VMO2 would pay £150 million for the remainder of Substantial, including YouFibre and Brsk ISP. In separate arrangements, the report says VMO2 would receive £1.1 billion in cash and an equity stake in nexfibre, while nexfibre would finance and own upgrades covering about 2.1 million VMO2 premises. An FTTP availability fee relates to 4.6 million premises.

These are distinct legs of a wider transaction framework, not amounts to add into a simple cash purchase price; some terms are redacted.

The ownership split is therefore more informative than a headline that says one group is buying another. The CMA is assessing a network transfer, a retail-business sale and continuing commercial ties between VMO2 and nexfibre. Each can alter who supplies wholesale access, who can buy it and how an ISP’s alternatives differ across the footprint.

Competition follows the overlap, not just the footprint

The CMA focuses its competitive assessment on wholesale fixed broadband across the parties’ combined FTTP footprint. Its reasoning is that a network overlap creates a direct alternative: an ISP can threaten to take volume to another owner serving the same area. The report also says network providers set some competitive terms across a broader footprint, so rivalry in a subset of places can influence prices or service terms elsewhere.

That is why adding premises is not the same as adding a competing wholesale option. A non-overlapping network extends reach; where it runs alongside another independently controlled network, it can constrain that network’s wholesale offer. Under the CMA’s counterfactual, CityFibre would own Substantial’s network and could wholesale it. After the proposed transaction, the same network assets would sit within nexfibre, while CityFibre would be outside that ownership group.

The report’s future-overlap table puts numbers on this distinction, but the denominators need attention. In its counterfactual, the combined CityFibre/Substantial footprint overlaps 31.9% of the future VMO2/nexfibre footprint. After the transaction, CityFibre alone overlaps 17.7% of the larger Merged Entity’s future footprint. CityFibre’s standalone figure is 18.2% against the counterfactual VMO2/nexfibre footprint.

The often-rounded comparison of about 32% with about 18% is not a like-for-like fall on a fixed network base. The post-transaction denominator includes Substantial’s added footprint, much of which does not overlap CityFibre. Nor are these percentages customer shares, revenue shares or measures of retail choice. They are modelled future network-overlap ratios. The CMA derives them from Ofcom’s January 2026 fixed-network data and assumptions that VMO2 will upgrade its full network to FTTP and that Openreach will migrate its legacy network to FTTP over the long run.

It uses current network sizes for other operators where further build is uncertain.

On the CMA’s provisional model, the CityFibre counterfactual would place Openreach, VMO2/nexfibre and CityFibre in relevant overlapping areas. After the proposed acquisition, the report says CityFibre has minimal overlap with Substantial’s footprint, leaving fewer independently owned wholesale networks in those locations. The CMA provisionally concludes that the transaction may substantially lessen wholesale competition. It also says better wholesale terms can flow through to consumer and business offers, while stopping short of predicting a final retail price effect.

Investment is part of the counterfactual too

The parties argue that the transaction brings network scale, investment and a stronger wholesale challenger to Openreach. Their submissions describe a combined footprint and targeted FTTP upgrades as ways to improve the commercial case for wholesale deals. Those claims matter, but they do not answer whether the incremental capacity depends on this particular ownership change.

The CMA recognizes that the transaction adds some scale and includes specific upgrades. Its provisional view is that much of the scale would be smaller than the headline suggests because VMO2 would upgrade its cable network to FTTP anyway. It also says the parties have provided limited evidence that the transaction materially increases the likelihood of new ISP wholesale agreements, or that CityFibre would be a worse owner for the Substantial footprint. These are provisional assessments, not a finding that investment has no value.

The case is now testing two linked questions: whether CityFibre was a realistic alternative owner, and whether the transaction’s additional wholesale reach is sufficiently specific to the deal to outweigh the lost competitive constraint. The parties’ remedy proposals are due on 16 October. Responses to the interim findings are due by 5pm on 23 October, and the statutory deadline for the final Phase 2 decision is 15 December. Until then, Substantial’s future owner and the terms available to wholesale ISPs remain unsettled.

Sources: CMA interim report (2 October 2026), especially pp. 18–19, 36–65, 99–102 and 140–145; summary of interim report; CMA case page and timetable.