If competition rules are to have any credibility, BT’s backroom deal to buy TalkTalk must be properly probed

By Lutz Schüler, Chief Executive

Last week, having been given just a fortnight to carry out a review that typically takes several months, the CMA delivered a report to Lisa Nandy on the potential competition impacts of BT’s acquisition of TalkTalk Group.

You’d be forgiven for having missed this development, given the fact that only the CMA’s website was quietly updated to note the delivery and there has been no public statement from the Government in the days that have followed.

This void serves only to exacerbate our concerns that this is a backroom deal being rushed through, bypassing any meaningful review by competition regulators – a process which other proposed deals in this sector have been rigorously subjected to in recent months, Here, the law is quite literally being changed to pave the way for this transaction through an amendment to the Enterprise Act to create a new public interest criteria.

You don’t need to be a hardened economist or lawyer to know that BT buying TalkTalk must surely raise competition concerns, so I want to be very clear: any deal that allows a dominant incumbent to further tighten its grip on the market and acquire one of its largest customers and closest competitors must be thoroughly scrutinised. Stringent competition rules cannot be watered down on a whim.

That is why I’ve written again to the Secretary of State urging her to be transparent on the Government’s handling of this transaction. Government must demonstrate that BT’s ownership is necessary on a permanent basis, rather than merely convenient, that other credible alternatives were considered, and that the CMA’s report – which almost certainly recommends a detailed review of the potential impacts on competition – is informing the final decision and was not just a paper exercise.

The CMA should be permitted to conduct an in-depth review

Given existing regulations and the Pre-emptive Action Order imposed by the CMA shortly after the deal was announced, we understand that any immediate threat to public health, public services, critical national infrastructure and supply to vulnerable customers has passed.

This means that the initial ‘public interest’ justification for the Secretary of State’s intervention is no longer necessary, and I can see no reason why this deal, like any other, should not now be subject to a detailed CMA investigation. Surely, proper scrutiny is in the public interest too?

The only fair and rational outcome here is that the CMA is given time to fully consider what remedies may be required to address the clear competition concerns that arise from this deal.

Paradoxical decisions send mixed messages to investors

BT has dominated the wholesale market for decades and is the largest retail broadband provider in the country. Should this acquisition of one of its closest competitors be waved through, BT’s market power will be further enhanced with less incentive to compete.

TalkTalk’s collapse, and the wider financial pressures being faced by altnets across the industry, are a worrying reflection of the realities of the UK’s broadband market which is shrinking and becoming increasingly unstable.

Only a few days before the Government’s intervention in BT’s TalkTalk acquisition, the CMA expressed concerns about a logical deal between nexfibre and Netomnia. While the deals are separate, the parallels are obvious and vitally important.

Raising competition concerns about the acquisition of a sub-scale altnet on a Friday and then allowing the UK’s dominant provider to buy a rival and customer on a Monday starts to sound like a Craig David song – albeit the only thing walking away will be investment into the UK and the establishment of any meaningful challenge to Openreach.

Investors are watching this market very closely right now. Paradoxical decision making and the handling of this transaction carries profound implications for the UK’s competitive landscape and its broader reputation as a place to invest, while also undermining the CMA’s stated ‘4Ps’ objective of pace, predictability, proportionality and process.

It also raises another potential dilemma. If competition concerns can be put aside when a connectivity provider faces financial collapse, is the lesson for investors here to just wait for insolvency before attempting to acquire a struggling provider? I’m not convinced ‘we’ll solve it when insolvent’ is the bumper sticker business Britain is looking for.

I understand that Government is navigating a tough situation here, but my ask is clear and reasonable. BT’s deal must face the proper scrutiny it deserves from the CMA, and the details of how this transaction came about should be disclosed openly.

Ensuring that a robust, transparent process occurs, whatever the outcome, is surely in the public’s interest, so I urge the Government to do the right thing and to not let BT sew up the market with a backroom deal.