The $7.3 billion transaction, comprising a mix of cash, equity, and debt, was first announced last November, but given the size and significance of the deal, it has faced significant scrutiny. The U.K. government initially kicked off a review of the deal based on national security grounds, though it finally greenlighted the deal last month concluding that it posed “no risk” to national security. In tandem, however, the U.K.’s competition authority confirmed in August that it was launching a preliminary investigation into whether there was grounds for a deeper probe into whether the coming together of two close rivals could impact businesses and consumers that use their services — this includes in-flight Wi-Fi, with both Inmarsat and Viasat among the biggest providers of in-flight connectivity globally.
The CMA’s initial findings published today indicate that the companies have a case to answer after all, noting that the deal could lead to airlines facing higher prices to access their satellite networks, a cost that would naturally be passed down to the passengers. While CMA acknowledges the emergence of newer low-earth orbit (LEO) satellite competitors including Elon Musk-owned SpaceX, which runs Starlink, in addition to OneWeb which is currently in the process of merging with French rival Eutelsat, it noted that the aviation sector is difficult for new satellite operators to enter. It wrote in its findings:
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.
On top of that, the CMA said that it’s difficult for airlines to change to a new provider once they’ve installed the necessary equipment in their aircraft, so even if newcomers did offer a viable alternative, airlines are disincentivized to switch due to the costs involved. It wrote:
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.
Effectively, the CMA has decided that the investigation will proceed to an in-depth “phase 2” investigation, however both companies now have five days to “submit proposals” that address the concerns raised. After that, the CMA will then spend another five days considering the proposal and decide whether to proceed with a fully-fledged investigation. It’s clear that Inmarsat and Viasat were given a heads up on this announcement, as they published a press release to coincide with the today’s published findings, replete with statements that counter the CMA’s key assertion that the newcomers aren’t at the stage to compete with the long-established incumbents. “There is no lack of competition in satellite connectivity for the aviation sector,” Inmarsat CEO Rajeev Suri said in their statement. “Strong players are already offering in-flight connectivity and the new low-earth orbit players — which already operate over half the satellite broadband capacity available globally — are aggressively and successfully targeting aviation. We expect competition to be robust in the years ahead and, together, Viasat and Inmarsat will be well-placed to invest in the technologies needed to meet the growing needs of aviation customers and compete with the LEOs and others.” UK to probe Inmarsat and Viasat’s $7.3B merger on competition grounds, says it could lead to pricier in-flight Wi-FI by Paul Sawers originally published on TechCrunch