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Viasat and Inmarsat $7.3b tie-up delayed over competition concerns

The multibillion dollar question: Will it make in-flight Wi-Fi on planes more expensive?

Global satellite maker Viasat's proposed $7.3 billion purchase of rival Inmarsat is being held up because Britain's competition regulator is worried about the deal's impact on in-flight passenger Wi-Fi on planes.

The two space broadband providers announced their intent to become one in November 2021, at the time operating 19 satellites with another 10 under construction and destined for space by 2024.

Yet completion has been delayed by Britain's watchdog, the Competition and Market Authority, which opened an investigation into the implications of the agreement in July, and this week found some cause for concern.

The probe revealed to the Authority that the pair compete closely in the aviation sector, particularly for the supply of on-board Wi-Fi for passenger use. Some airplane operators offer this service (if you're in cattle class you have to pay, but business and first class passengers usually get it for free) and availability is expected to grow in the next few years.

Starlink, OneWeb and Telecast are among other market entrants eyeing up the aviation sector but the CMA said it found "significant uncertainty" about when these businesses would be in a position to compete effectively with a mega-merged Viasat and Inmarsat giant.

As such, it is worried that approving the sale would reduce competition and adversely impact UK businesses and consumers, ie – airlines could be charged higher prices and be offered lower quality connectivity services by the vendors, ultimately trickling down to the paying passengers.

In a statement, Colin Rafferty, senior director at the CMA, said: "This is an evolving market, but the merging companies are currently two of the key players – and it remains uncertain whether the next generation of satellite operators will be able to compete effectively against them."

Rafferty added: "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."

Inmarsat and Viasat now have five working days to respond to the CMA, and the authority then has a further five days in which to accept any offer from the duo or refer the case for a deeper Phase 2 investigation.

In a joint statement, Viasat and Inmarsat defended their merger plans, saying they remained committed to working with the CMA to reach a resolution.

"There is great interest in ubiquitous, high-performance, affordable IFC [In-Flight Connectivity], so the CMA's decision to proceed to a Phase 2 review is not unexpected, even though IFC represents less than 10 percent of the revenues of the combined company," said Mark Dankberg, CEO and executive chairman, Viasat.

"This is still a nascent, dynamic, and rapidly evolving business, with existing providers and extremely well-financed new entrants bringing new technologies and new business models to increase adoption among airlines, passengers, and aircraft types. We intend to work closely with the CMA to show that our transaction will benefit customers by improving efficiencies, lowering costs, and increasing IFC availability around the world—and to reach a satisfactory conclusion in Phase 2," he added.

Rajeev Suri, Inmarsat CEO, said there was "no lack" of competition in satellite connectivity for the plane industry.

"Strong players are already offering in-flight connectivity and the new low-earth orbit (LEO) 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."

Megabuyte noted: "It is perhaps unsurprising that Viasat's CMA response suggests that it would rather go to Phase 2 than give up some of the combined IFC business, given how a recovering airline sector drove both companies' second-quarter financial performance, with IFC, in particular, the star of the show."

The analyst pointed out that Inmarsat had reported 49 percent total aviation revenue growth, but that IFC (making up about a fifth of aviation revenues) grew 59 percent. Viasat now has 36 percent more IFC aircraft in operation, Megabuyte added.

"Viasat clearly hopes to talk up potential competition from Starlink and OneWeb, noting that these so-called LEO players already operate over half the satellite broadband capacity available globally," it said.

Both organizations will no doubt be eyeing events in other probes undertaken by the CMA, including Meta's purchase of Giphy. The competition body has agreed to reboot an investigation into the Facebook parent's purchase of the GIF warehouse following a London tribunal. ®

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