CMA merger counterfactual: the rival bidder in nexfibre/Substantial
In short: The CMA merger counterfactual in nexfibre/Substantial is, provisionally, a purchase of Substantial by CityFibre, the rival bidder in the 2025 sale process, followed by a sale of its retail businesses. Measured against that, the CMA provisionally found on 2 October 2026 that the deal may be expected to lessen competition substantially in wholesale fixed broadband. Any remedies form is due by 16 October, comments by 23 October and the final report by 15 December 2026.
When two bidders compete for a UK network business, the competition authority can judge the winning bid against what the other bidder would have done with the business. The Competition and Markets Authority (CMA) has done exactly that with nexfibre’s proposed purchase of Substantial, which owns the Netomnia and Brsk fibre networks and the YouFibre retail brand, at an enterprise value of about £2 billion. It compared the deal with Substantial in CityFibre’s hands and, on that comparison, provisionally found a loss of competition. The parties may still offer remedies, and the final report is due by 15 December 2026.
Where the nexfibre/Substantial merger inquiry stands
On 2 October 2026 the CMA’s inquiry group published a summary of its interim report, with the full report to follow. It provisionally found that the transaction may be expected to result in a substantial lessening of competition (SLC), the test in section 36(1)(b) of the Enterprise Act 2002, in the wholesale supply of fixed broadband within the parties’ combined fibre-to-the-premises (FTTP) footprint (summary, paragraph 49). The case reached Phase 2, the CMA’s in-depth investigation, on 1 July 2026 by a fast-track reference made at the parties’ request under section 33(1A). Under the interim report notice, the parties must say within three working days whether they will offer remedies and must file any remedies form by 5pm on 16 October 2026. Other interested parties may comment on the provisional findings until 5pm on 23 October 2026, and the statutory deadline for the final report is 15 December 2026. The CMA has not blocked the deal.
How the CMA builds a merger counterfactual
The CMA merger counterfactual is the CMA’s view of what would have happened without the deal, and the CMA measures the deal’s effect on competition against it. At Phase 2 the CMA “will select the most likely conditions of competition as its counterfactual” (Merger Assessment Guidelines, CMA129, paragraph 3.13). Under the guidelines, “Uncertainty about the future will not in itself lead the CMA to assume the pre-merger situation to be the appropriate counterfactual”, and the CMA may consider the ability and incentive of the merging firms to pursue alternatives (paragraph 3.14). The CMA revised the efficiencies section of the guidelines on 3 September 2026 for cases whose formal Phase 1 began on or after that date. The counterfactual guidance is unchanged in substance, and this case began formal Phase 1 on 29 June 2026.
A sale process was held for Substantial in 2025, and both nexfibre and CityFibre bid (summary, paragraph 19). The inquiry group asked which future was more likely: Substantial carrying on alone, or Substantial owned by CityFibre. It read Substantial’s internal papers on its strategic options and the financial models it shared with its investors, and it examined CityFibre’s sources of finance and its negotiations with Substantial (paragraphs 21 and 22). Its provisional view is that Substantial’s shareholders had “a strong incentive to reach a deal with CityFibre”, that CityFibre was “highly motivated”, and that CityFibre “would likely have been able to raise the required funding” at a valuation the shareholders would accept (paragraphs 21 and 23). The provisional counterfactual is a CityFibre acquisition followed by a sale of Substantial’s retail businesses to another internet service provider (ISP) (paragraph 24).
The exiting-firm scenario, which the guidelines reserve for a business that would otherwise leave the market, did not arise on the summary’s account. That scenario has two cumulative limbs: the firm would have exited, and no less anti-competitive purchaser was available at any price above liquidation value (CMA129, paragraphs 3.21 to 3.30). The CMA found that carrying on alone was “a viable option” for Substantial, though less attractive to its shareholders than a sale (summary, paragraph 21). On my reading, the inquiry group compared two live futures and chose the more likely.
Why the CMA found a loss of competition against the CityFibre counterfactual
Substantial has no wholesale customers, whereas CityFibre would likely have wholesaled the network to its existing ISP customers, including Sky and VodafoneThree (paragraph 19). The CMA analyses Virgin Media O2 (VMO2) and nexfibre together as VMO2/nexfibre. nexfibre is a wholesale-only fibre network whose “anchor (and currently only) customer” is VMO2 (paragraph 6). In the CityFibre counterfactual, Openreach, VMO2/nexfibre and CityFibre would all compete in about 32% of the VMO2/nexfibre network; after the deal the figure falls to about 18% (paragraphs 34 and 35). VMO2/nexfibre’s FTTP network overlaps about 26% of Substantial’s network, and would overlap about 82% if VMO2 upgraded its whole cable network to FTTP (paragraph 36). The CMA described CityFibre as “a vigorous wholesale competitor” (paragraph 37).
The CMA called Openreach “an important wholesale competitor”, but also “a regulated entity that cannot freely compete on key metrics such as price and service”. It provisionally found that the constraint from Openreach and from the smaller alternative network operators (altnets) would not be enough to offset the effect of the deal (paragraph 38). Ofcom’s control of Openreach’s commercial offers under its Telecoms Access Review 2026-31 is set out in Ofcom’s review of the Openreach commercial offers and its decision on the New to Openreach (NTO) offer.
The CMA provisionally rejected the parties’ main efficiency argument, that the deal would create a stronger, financially sustainable wholesale challenger to Openreach. It found the extra scale “relatively small” because VMO2 is already upgrading its cable network, and said the parties had provided “limited evidence” that the deal would make ISPs more likely to sign wholesale agreements (paragraphs 42 and 43). The parties did not provide evidence of a clear benefit in VMO2/nexfibre rather than CityFibre wholesaling Substantial’s network (paragraph 43). The CMA’s provisional view is that the efficiency is not specific to the merger and would not in any event prevent an SLC (paragraph 44). It defined the relevant market as wholesale supply of fixed broadband within the parties’ combined FTTP footprint (paragraph 31).
Implications of the counterfactual for sellers and bidders
In a contested sale of a UK network business, the CMA can use the sale-process record as merger-control evidence. Here it relied on Substantial’s strategy papers and investor models, the negotiations with CityFibre and the evidence on CityFibre’s ability to fund a purchase, including its shareholders’ readiness to invest equity and third-party interest in buying Substantial’s ISPs (paragraphs 20 to 23). In my view a rival bidder with credible finance makes the counterfactual harder for the winning bidder to displace, and an efficiency case that measures the deal against the target as it stands, rather than against the target in the rival’s hands, answers a different question from the one the CMA asks. Sellers and bidders on regulated network transactions can find more on our deal structuring and negotiation page.
Exit value depends on a buyer who can clear
Altnet exits divide, on the happy-path and unhappy-path analysis published in April 2026, into a strategic exit at market value and a lender-driven exit, with take-up and debt service deciding which. I placed nexfibre/Substantial on the happy path, on the assumption that the best bidder could clear merger control. The buyer that values a network most may be the one whose own footprint overlaps it most, and where the overlap is large the CMA may find an SLC. For a seller, the price that counts is the best bid that can clear. The CMA’s findings are limited to the overlap between these networks, and “do not reflect any view on consolidation in the wider altnet sector” (paragraph 48). Each bidder’s merger-control position is therefore part of the valuation of an altnet, alongside take-up and leverage.
Perspective
I read the interim findings as an application of the guidelines to the overlap between two networks, and the CMA has said in terms that they express no view on altnet consolidation generally (paragraph 48). For Substantial, the inquiry group relied on internal strategy papers and the financial models shared with investors (paragraph 21). Those documents are written for a board or for investors, and an inquiry group reads them for a different purpose. The parties’ remedies form, if they file one, is due by 16 October 2026, after which the CMA will publish an invitation to comment on remedies (paragraph 51).
Frequently asked questions
Has the CMA blocked the nexfibre/Substantial merger?
No. On 2 October 2026 the CMA’s inquiry group provisionally found that the merger may be expected to lessen competition substantially in wholesale fixed broadband. The parties may file a remedies form by 16 October 2026, other interested parties may comment by 23 October 2026, and the CMA must publish its final report by 15 December 2026.
What is a merger counterfactual?
It is the CMA’s view of what would have happened without the merger, against which it judges the merger’s effect on competition. At Phase 2 the CMA selects the most likely conditions of competition, and uncertainty about the future does not by itself lead it to assume the pre-merger position (Merger Assessment Guidelines, paragraphs 3.13 and 3.14).
Why did CityFibre’s bid matter?
CityFibre bid for Substantial in the 2025 sale process. The CMA provisionally found that, without the nexfibre deal, CityFibre would most likely have bought Substantial and wholesaled its network to ISPs. On that view, the nexfibre deal would remove a third wholesale competitor from about 14% of the VMO2/nexfibre network, where Substantial and VMO2/nexfibre overlap.
For advice on merger control in the sale or purchase of a UK network business, contact Rob Bratby at Bratby Law.
