Viasat takeover of UK rival Inmarsat faces in-depth competition probe

The offices of satellite operator Inmarsat in central London.

Leon Neal | AFP | Getty Images

The UK competition authority launched an in-depth investigation into the American satellite internet company Viasat $7.3 billion deal to buy British competitor Inmarsat.

The Competition and Markets Authority remanded the acquisition on Friday for a so-called “Phase 2” competition investigation, fearing it would make it more difficult for competitors such as Elon Musk’s SpaceX, the British company OneWeb and the Canadian operator telesat to do business with the aviation industry.

In particular, the CMA fears the deal would result in higher prices for Wi-Fi on board aircraft flights.

The watchdog said Viasat and Inmarsat “compete closely in the aviation sector, particularly in the provision of in-flight WiFi for passenger use”. While these inflight connectivity (IFC) services are currently only offered by a handful of players, “the market is expected to grow significantly in the coming years,” says the CMA.

Such a move “could come with higher prices and lower quality connectivity solutions, ultimately affecting the cost, quality and availability of services for passengers,” he added.

The regulator said its initial investigation found it can be very difficult for airlines to switch satellite providers once they have network equipment installed. The merger of Viasat and Inmarsat could therefore “tie a large part of the customer base to itself” before competing providers emerge.

Together, Intelsat and rival Panasonic represent more than 75% of the long-haul IFC market, the regulator said.

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

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Viasat signs a $7.3 billion acquisition deal with Inmarsat

“Ultimately, airlines could be faced with a worse deal as a result of this merger, which could impact UK consumers as in-flight connectivity becomes more widespread.”

In a statement on Friday, Viasat and Inmarsat said they are “confident that the transaction will increase the availability of more affordable, faster and more reliable IFC [in-flight connectivity] worldwide to operators, airlines and passengers.”

The two companies will be “actively engaged” in the CMA’s investigation and will “identify and communicate any updated expectations for the deal while continuing to work with the CMA,” they said.

Viasat CEO and Executive Chairman Mark Dankberg said the agreement will increase the availability of onboard connectivity services worldwide. “Industry analysts believe that the entry of new, well-funded LEO competitors will make an already highly competitive IFC market even more competitive,” he added.

Inmarsat “faces intense competition in providing in-flight connectivity every day,” said Rajeev Suri, CEO of Inmarsat.

“There is good reason to believe that this intensity will increase given the power of well-funded new companies entering the sector. With these changing market dynamics, the UK has much to gain from the presence of a strongly positioned satellite communications company to bolster the country’s position in the critical space sector, while supporting its national defence, job and investment growth.”

A number of companies ranging from Elon Musk’s SpaceX to Amazon, which owns the Kuiper satellite constellation, is racing to launch satellites into space to send internet to people in rural and hard-to-reach areas so they can connect to the internet. It has become a key focus for the UK government, which has investments in domestic satellite company OneWeb.

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But it is difficult for companies to succeed in the market as it requires a lot of capital and manpower. In 2020, OneWeb went bankrupt after burning billions of dollars to investors including Japan SoftBank. The company was bailed out later that year with help from the UK government raising $500 million in a bailout.

Britain and the European Union have also become more aggressive in defending their “digital sovereignty” – the idea that countries should not lose control of strategic technologies such as semiconductors, artificial intelligence and cloud computing. In the UK, a bill known as the National Security and Investment Act will allow governments to intervene in foreign takeovers if they feel it poses a national security risk.

American chip manufacturer Nvidia’s An attempt to take over British chip designer Arm fell through after a national government security review and a federal lawsuit by the FCC. Meanwhile, the sale of Welsh semiconductor company Newport Wafer Fab to a Chinese-owned company is the subject of a British safety investigation.

In the case of Viasat and Inmarsat, the deal has already been approved for national security reasons in the UK and US