BT’s announcement that it plans to acquire struggling UK broadband provider TalkTalk has been slammed by Virgin Media O2, the company’s biggest fiber rival.

In a scathing statement issued by Virgin Media O2, the carrier questioned the logic of the proposed deal and aired its own grievances over comments from the Competition and Markets Authority (CMA) that could block Nexfibre’s planned takeover of Netomnia.

“This has all the characteristics of a stitch-up masked as a rescue deal in the public interest,” said a spokesperson for Virgin Media O2.

“Just days after the competition regulator proposed potentially blocking a logical deal between Nexfibre and Netomnia that would accelerate fiber investment and create a genuine, financially sustainable challenger to Openreach, it now appears that rules might be watered down so the incumbent can roll its tanks over competition and further tighten its grip on the market.”

It comes after BT announced an agreement to snap up TalkTalk Telecommunications Limited and PlatformX Communications Limited, both of which are currently in administration.

That agreement is set to ensure continuity of service for the network’s 2.5 million customers, and secure 900 jobs, in a deal which BT said will come at a cost of some £400 million ($529m).

Just to add some irony to the situation, it was previously reported that Virgin Media abandoned a deal to acquire the company a few years back.

What about Nexfibre’s Netomnia takeover?

While that deal didn’t take off, Virgin Media’s fiber ambitions have taken off during the last few years. At present, the telco’s full fiber network stretches to more than nine million locations.

Nexfibre is a JV of Virgin Media O2’s parent companies Liberty Global and Telefónica. In February, the company struck an agreement to acquire Substantial Group, which includes Netomnia.

Netomnia is one of the bigger altnets (alternative network providers) in the UK. The company’s fiber network has reached more than three million premises, while the company has more than 460,000 customers.

However, the deal, which has been criticized by other altnet providers such as CityFibre, is now up in the air.

The CMA outlined its interim report on the transaction last week, highlighting that it could block the deal, and even suggested that CityFibre could snap up Substantial Group should it block Nexfibre’s efforts.

“In our view, the transaction gives rise to a significant reduction in wholesale competition across the parties’ FTTP network footprints (for simplicity, we focus here on the VMO2/Nexfibre network),” said the CMA. “Our analysis shows that VMO2/Nexfibre’s network is fully overlapped by Openreach, c.14 percent overlapped by Substantial, and c.18 percent overlapped by CityFibre (with minimal overlap between Substantial and CityFibre).”

The CMA fears that this would lead to CityFibre being squeezed out, with only wholesale competition between Openreach and VMO2/Nexfibre in these overlap areas.

“The transaction would materially reduce the competitive constraints on VMO2/Nexfibre in a significant part of its network,” added the CMA.

CityFibre was involved in the initial bidding process for the Substantial business last year, and the CMA wants to assess whether the altnet would be a better fit for a deal.

“We have assessed whether, absent the transaction, it is more likely that Substantial would have remained as a standalone entity or would have been acquired by CityFibre,” noted the CMA. We consider that we need to form a judgment as to which of these scenarios is more likely, as these two scenarios could lead to materially different conditions of competition: Substantial does not currently have any wholesale customers, and competes at the retail level through YouFibre, whereas CityFibre would likely wholesale the Substantial network to its current ISP customers (including Sky and VodafoneThree) and sell YouFibre to a third party.”

Does the logic add up?

The CMA’s stance has been seen by some observers as a surprise, leading Virgin Media O2 to push back on BT’s planned deal to acquire TalkTalk, citing a lack of logic.

“The logic simply doesn’t add up. We don’t believe rules should be thrown out the window to allow TalkTalk to fall into BT’s lap without a proper process and we will be raising our concerns directly with government and regulators,” said Virgin Media O2.

Should the deal get the go-ahead, the company aims to expand its Nexfibre footprint to around eight million premises by the end of 2027. Combined with Virgin Media O2, which is co-owned by Liberty Global and Telefónica, the two networks will collectively reach 20 million premises. Such a move would provide competition to Openreach, which is set to hit 25 million premises by the end of this year.

As part of the deal, Infravia, Liberty Global, and Telefónica are committing £1bn ($1.35bn) in new net funding for Nexfibre to fund the transaction. This is made up of £850m ($1.1bn) from Infravia and £150m ($201m) jointly from Liberty Global and Telefónica, with Virgin Media O2 committing traffic on 4.6m overlapping and adjacent homes.

The UK fiber industry has collectively called for consolidation time and time again, though the outcome of these deals will likely shape the future of the market.

Kester Mann, director, consumer and connectivity, FDM CCS Insight, expects both deals to face heavy scrutiny.

“Given BT’s strong position in the broadband market, it will inevitably also evoke scrutiny from regulators keen to ensure a fair and competitive playing field. This is even more relevant coming just days after competition authorities raised serious concerns over Nexfibre’s planned acquisition of Netomnia,” said Mann.