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Viasat deal with Inmarsat raises U.K. regulator concerns about in-flight Wi-Fi competition

British competition regulators plan to take a deeper look into Carlsbad-based Viasat’s pending $7 billion acquisition of rival satellite firm Inmarsat over concerns about market dominance around supplying in-flight Wi-Fi to commercial airlines.

The move announced Thursday by the United Kingdom’s Competition and Markets Authority (CMA) is likely to delay the closure of the deal. Viasat had hoped to wrap up the acquisition of London-based Inmarsat by the end of the year.

The CMA completed its first phase of the review of the merger this week. Viasat has agreed to pay $850 million in cash, $3.1 billion in stock and assume $3.4 billion in debt to acquire Inmarsat.

That review could have been the end of it. But red flags about the combined companies’ market power as key suppliers of in-flight connectivity technology for aviation led the CMA to recommend proceeding to a more vigorous Phase 2 review.

It is unclear how long that might take. Viasat and Inmarsat have until Oct. 13 to respond to the agency’s Phase 2 finding.

Viasat Chief Executive Mark Dankberg said the Phase 2 recommendation was not a surprise — even though in-flight connectivity is only about 10 percent of the combined companies’ business today.

“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,” said Dankberg.We intend to work closely with the CMA to show that our transaction will benefit customers.”

Both Viasat and Inmarsat supply satellite Wi-Fi to commercial airlines and business jets. Viasat’s customers include JetBlue, United Airlines, Delta, American Airlines and Southwest. Its technology is installed on about 1,800 aircraft, mostly serving North America.

The CMA said many airlines consider in-flight connectivity a “must-have” service to meet passenger desires to stay connected during flights. The agency contends Viasat and Inmarsat are “currently the strongest in-flight connectivity providers available to airlines.”

The agency discounted existing competitors — one for offering expensive, older technology, another for serving only short-haul routes and a third for having a “modest” position in the market.

Regulators did acknowledge that more competition is coming from low-earth-orbit satellite providers such as SpaceX’s Starlink, OneWeb and Amazon’s Kuiper. Hawaiian Airlines has already signed up to work with Starlink on in-flight Wi-Fi beginning next year.

But the CMA said Starlink and the others currently haven’t produced “an in-flight connectivity service that is proven to work.” These new competitors still face technical, regulatory and commercial barriers, according to the agency. They include certifications to install equipment on each aircraft model, national licenses around the world and networks to cope with increasing volumes of data traffic.

“The evidence also shows that it is difficult for airlines to switch providers once they have installed an in-flight connectivity solution,” the agency wrote. “As such, the CMA is concerned that (Viasat/Inmarsat) could effectively lock in a large part of the customer base” before Starlink and others become credible alternatives.

In a statement, Inmarsat Chief Executive Rajeev Suri said there is plenty of competition currently in aviation connectivity, and the new low-earth-orbit providers are already aggressively targeting the market.

“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 low earth orbits and others,” he said.

Later this year, Viasat is expected to launch the first of three terabit-class geostationary satellites that will give it massive capacity, flexibility to direct bandwidth where it’s most needed and lower costs per bit.

The first of these new terabit-class satellites will cover the Americas. The second will follow about six months later and cover Europe, the Middle East and Africa. Timing for the third satellite over the Asia Pacific region is uncertain. Inmarsat also plans to increase satellite capacity with new launches.

Viasat shares ended trading Thursday down 52 cents at $40.24 on the Nasdaq exchange.