The British competition watchdog has confirmed it will deepen its investigation into the merger between US satellite operator Viasat and Inmarsat.

It was last November when US-based Viasat first revealed its intent to acquire British satellite telecommunications company Inmarsat for $7.3 billion, in order to “create a leading global communications innovator with enhanced scale and scope to affordably, securely and reliably connect the world.”

The deal however is attracting regulatory scrutiny. In late July the European Commission signalled the deal would need its approval before it could be completed.

Regulatory concerns

A month later in August the UK’s Competition and Markets Authority (CMA) began a phase one investigation of the deal.

And it announced this week it has found a problem with the deal.

It said it “has decided, on the information currently available to it, that it is or may be the case that this merger may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom.”

This merger is therefore referred for a “phase 2 investigation unless the parties offer acceptable undertakings to address these competition concerns.”

So what exactly are the CMA’s antitrust worries about the deal?

Airline issue

The CMA said it has found Viasat’s merger with Inmarsat could lead to airlines facing higher prices for on-board Wi-Fi, and potentially worsen Wi-Fi quality on-board.

The CMA noted that demand for satellite connectivity is increasing rapidly, driven in large part by the ever-growing use of the internet by businesses and consumers, including through the increased use of data-intensive applications.

“The investigation by the Competition and Markets Authority (CMA) found that Viasat and Inmarsat compete closely in the aviation sector, particularly for the supply of onboard Wi-Fi for passenger use,” the regulator said. “While only some airlines currently offer in-flight connectivity, the availability of these services is expected to grow significantly in coming years.”

The deal brings together two of the strongest suppliers in a market with few other established players, despite plans by other players, such as Starlink, OneWeb, and Telesat, seeking to target the aviation sector.

The reality, the CMA said, is this is one of the most difficult industries for satellite operators to enter, and the CMA’s initial investigation has found that there is significant uncertainty about when – if at all – these suppliers would be in a position to compete effectively with Viasat and Inmarsat.

The CMA’s investigation also found that it can be very difficult for airlines to switch providers once they have installed a connectivity solution.

The CMA is therefore concerned that the merged company could effectively lock in a large part of the customer base before emerging suppliers are able to compete.

Phase two probe

“This is an evolving market, but the merging companies are currently 2 of the key players – and it remains uncertain whether the next generation of satellite operators will be able to compete against them effectively,” said Colin Raftery, CMA senior director.

“Ultimately, airlines could be faced with a worse deal because of this merger, which could have knock-on effects for UK consumers as in-flight connectivity becomes more widespread,” said Raftery.

The firms now have 5 working days to submit proposals to address the CMA’s competition concerns.

The CMA then has a further 5 working days to consider whether to accept any offer instead of referring the case for an in-depth Phase 2 investigation.

Both Viasat (based in the US) and Inmarsat (based in the UK) operate their own satellite networks and provide two-way satellite communication globally to commercial customers and governments.

The combined entity is expected to operate a fleet of 19 satellites that are currently in service.

An additional 10 satellites are under construction and planned for launch within the next three years.

Sector consolidation

However the two firms are relatively small players competing against much larger rivals – some of which have access to significantly more resources.

SpaceX’s Starlink for example already has approximately 2,900 Starlink satellites in operation.

Meanwhile the UK’s OneWeb is in the process of merging with French satellite company Eutelsat, which is already a shareholder in the British firm.

The UK government (a OneWeb shareholder) has welcomed that development, but pointed out it would “retain the special share and its exclusive rights over OneWeb.”

There is also Amazon.com’s Project Kuiper, which plans to spend $10 billion to construct a network of more than 3,200 satellites in low Earth orbit.

Tom Jowitt

Tom Jowitt is a leading British tech freelancer and long standing contributor to Silicon UK. He is also a bit of a Lord of the Rings nut...

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