Consolidation in the telecoms market: will increased competition scrutiny follow?

Over the past few years, the growth in alternative network providers (”Altnets”) has resulted in lower broadband prices, faster speeds and arguably better service to consumers in the telecoms market across the UK. However, as that fast-paced growth gives way to a wave of consolidation amongst Altnets (for example the Virgin Media O2/Nexfibre acquisition of Upp and CityFibre acquisition of Lit Fibre), it is likely that greater CMA scrutiny of such consolidations will follow. Whether or not that increased scrutiny will result in deals being blocked is less clear.

CMA jurisdiction

The UK merger control regime is a 'voluntary' regime governed by the Enterprise Act 2002. It is voluntary in the sense that parties to a merger or acquisition are neither required to notify a deal that falls within the regime's scope nor to secure clearance before completing the deal. However, while the regime is voluntary, the CMA does have the power to ‘call in’ for investigation an anticipated or indeed completed transaction that it considers poses a potential risk to competition.

The CMA will have jurisdiction over a transaction that leads to two or more enterprises (including, for present purposes, Altnets), ceasing to be distinct if at least one of the following three tests is met:

1. the enterprise being acquired has a UK turnover of more than £100m (the ‘turnover threshold’);
2. the parties (at least one of which must have a UK turnover of more than £10m) supply or purchase any goods or services of the same type ("overlapping goods / services") and the transaction will result in at least 25% of the overlapping goods / services supplied or purchased in the UK, or in a substantial part of the UK, being supplied or purchased by the same person (i.e. the post-merger entity), or will increase the percentage if it is already 25% or more (the ‘share of supply threshold’); or
3. one party has a turnover of at least £350m and supplies or purchases at least 33% of a particular description of goods or services, in the UK or a substantial part of the UK and the other party has some connection to the UK (the ‘hybrid threshold’).

These thresholds are potentially very broad. In particular the CMA has the discretion, when applying the share of supply threshold, to define a product or geographic market as narrowly or broadly as it considers appropriate, for the purposes of establishing its jurisdiction. If a transaction that satisfies any of these thresholds is notified or is called in by the CMA, it has the power to prevent it from completing or (if it has already been completed) to require it to be unwound.

Market consolidation and scrutiny

The breadth of the CMA’s jurisdiction means that waves of consolidation can quickly result in the CMA having the discretion to call in more transactions. Given that in many areas of the UK there may only be one, or at most two, competitors to Openreach, it is very likely that the CMA could assert jurisdiction over any Altnet merger by defining relevant geographic markets fairly narrowly. While each Altnet may operate across several areas of the UK, a given area may only really have a very small number to choose between. This makes consolidation liable to give rise to competition concerns.

The likelihood of the CMA exercising that jurisdiction so as to call in a deal will in turn depend on how likely the CMA thinks the deal is to result in a 'substantial lessening of competition' in any market: that is, where the reduction in the number or type of competitors (existing or potential) in a market is likely to lead to a negative impact on customers such as reduced quality, less choice and/or higher prices. The CMA would also consider the extent to which the combined Altnets would gain market power, including whether sufficient competition would remain in the market to make it unlikely that it would be profitable for the combined business to increase prices or reduce quality. If consolidation is likely to reduce the number of options that households have, in terms of alternatives to Openreach, then the CMA may take the view that the likely effect of that will be to increase prices or reduce choice, and that this requires its intervention.

CMA / Ofcom coordination

As ‘concurrent’ regulator for the telecommunications sector, Ofcom can contribute its market knowledge to the CMA’s analysis of relevant mergers that are called in. Ofcom does not decide telecoms mergers but does have a role in ensuring effective competition within the sector.

In particular, while the CMA is the decision maker in terms of merger control, Ofcom’s sector expertise can often help to shape the evidential picture, the CMA’s position on undertakings and remedies (that is, what commitments it will accept in exchange for allowing a merger to proceed), and the post-merger oversight of those commitments. The CMA and Ofcom have long‑standing memorandums of understanding on concurrency and coordination. The CMA’s decision on remedies in the Vodafone/Three merger included binding undertakings for long‑term network investment commitments that were embedded as licence conditions enforceable by Ofcom.

Market context

Two broader contextual points are of particular relevance to any telecoms mergers that might be called in as part of the current wave of consolidation.

Firstly, in 2025 the UK Government issued a ‘strategic steer’ asking the CMA to consider how best it could exercise functions so as to support growth, investment and predictability without compromising its statutory duty to protect competition. While this ‘growth friendly’ steer is not stated to be any sort of a free pass, the CMA has updated its jurisdiction guidance and is actively refining its remedies guidance. These changes do appear to indicate that the CMA has become more open than before to behavioural remedies (that is, those that relate to how the merged entity will run its business, for example the remedies ultimately accepted in the Vodafone/Three merger, rather than structural remedies that relate to what parts of the merger are permitted to proceed).

Secondly, in the current economic climate, the ‘failing firm’ argument may also become more relevant to consolidation in the Altnet market. This, in short, is where the CMA considers whether the counterfactual to a merger is truly the parties continuing to compete independently, or whether in reality one or both would cease to be an effective competitor irrespective of whether the transaction completed. Where one of the merging parties is likely to become insolvent, the CMA may accept that there is little or no additional competition to be secured by prohibiting the concentration.

With regard to such arguments the CMA’s position remains that the evidential bar the parties have to clear is a high one: parties must show inevitable exit from the market absent the merger. For consolidations in the telecoms sector that the CMA calls in for closer examination, that may make it more likely that distressed consolidations are cleared unconditionally where the only alternative is genuine exit from the market (e.g. withdrawing from local markets) and the parties can show that asset sales to alternative buyers are unlikely to preserve competition more effectively. It is of course very likely that the CMA will take the views of Ofcom on any such ‘failing firm’ arguments.

What does this mean for consolidation among Altnets?

All things being equal, consolidation in any market is liable to reduce competition and therefore to increase the risk of an adverse effect on prices, quality and choice. For that reason, it tends to attract the attention of competition regulators, and it seems somewhat inevitable that merger control scrutiny is coming for the telecoms sector as the consolidation of Altnets gains pace. While recent policy steers indicate that the CMA is likely to be more open to arguments that consolidation will be pro-competitive and pro-growth, and more receptive to arguments that the alternative to consolidation is an increase in business failures, Altnets should be under no illusion that the CMA will allow the market to consolidate without scrutiny. Merging parties should take account of potential regulatory scrutiny when negotiating, agreeing and deciding whether to notify any such merger, and may even wish to consider a proactive ‘briefing’ to the CMA’s Mergers Intelligence Committee to gauge the CMA’s appetite to scrutinise their plans.

If you have any queries about how the CMA's powers might affect your own transaction, or how competition law impacts on your organisation more generally, get in touch with Jamie Dunne, Charles Livingstone, Caoimhe Hunter Blair, or your usual Brodies contact.