(4 months, 2 weeks ago)
Commons ChamberRead Hansard Text Watch Debate Read Debate Ministerial Extracts
Liam Byrne (Birmingham, Hodge Hill) (Lab)
I beg to move,
That this House has considered the potential merger of Three and Vodafone.
I am grateful to the Backbench Business Committee for making time for this debate on what will be one of the largest mergers we see in this country this year. The merger has profound implications for the security, the costs and the quality of that everyday essential in the lives of our constituents: their mobile phone.
The debate is not simply about a merger; it is on three significant questions about the way in which our economy is now run. First—this is at the heart of the debate and a big question—is our investment security regime fit for purpose in a world where the threats are continuing to multiply? Secondly, are we are prepared to see the good, honest force of competition continue to wither? Thirdly, in a country where business investment continues to disappoint, will the deal help or not?
The facts are pretty straightforward. Three, which is owned by CK Hutchison, and Vodafone have announced a deal to merge. It is a £15 billion deal, which will create the largest operator in the market—bigger than EE or O2. Crucially, it will reduce the number of mobile network operators from four to three, and the merged entity will be enormous. If the merger goes through, it will control half the UK’s mobile spectrum. The Competition and Markets Authority is looking at the competition dimensions, but we need to understand what the Government—either the Cabinet office or the Minister in his place—will do to ensure that the deal is brought in to the Investment Security Unit for the hardest possible review under the terms of the National Security and Investment Act 2021.
The case for the merger has been well rehearsed, and the Business and Trade Committee has taken evidence to try to unpack it. Three and Vodafone say that the deal will create a bigger firm that can compete much more effectively. They say that it will stimulate investment in the mobile network operator market and allow them to eliminate the overlap between their networks and use that money to build a mobile network with 25,000 masts, which will extend mobile coverage into the notspots that are so frustrating for many of our constituents. However, we need answers to some basic questions, and those start with national security, which must always be the principal consideration for us in the House when we look at such questions.
We cannot avoid the fact that the proposed deal will put 49% of the merged Three-Vodafone business into the hands of the CK group. That group is based in Hong Kong and, as such, falls under the ambit of the Hong Kong national security law. As the House knows, once upon a time, Hong Kong was considered meaningfully different from mainland China, but the introduction of the national security law has destroyed Hong Kong’s legal autonomy. It now provides Chinese authorities with the power to demand user data from companies under the threat of fines, asset seizures, or indeed imprisonment.
Furthermore, CK’s leaders are not unconnected to the Chinese state—far from it. Li Ka-shing, the founder of CK Hutchison, has in the past voiced his support for China’s draconian moves in Hong Kong. His son, Victor Li, is a member of the 14th national committee of the Chinese people’s political consultative conference of the People's Republic of China, and is a member of the Chief Executive’s council of advisers of the Hong Kong special administrative region. Mr Li is a supporter of John Lee, the chief executive of Hong Kong and the former police chief who led the efforts to crack down on the pro-democracy protest movement in 2019.
Those facts are completely central to the debate on whether the merger should go through. As the Intelligence and Security Committee has made clear in its brilliant report on China, the problem is China’s whole-of-state approach. In that report, it noted that
“Chinese state-owned and non-state-owned companies, as well as academic and cultural establishments and ordinary Chinese citizens, are liable to be (willingly or unwillingly) co-opted into espionage and interference operations overseas”.
That was its considered judgment.
That warning comes on top of those we have already had from Richard Moore, the chief of MI6, who declared in July that China aims to strike deals with other countries that allow it to capture data on citizens and national projects. He said that
“Chinese authorities are not hugely troubled by questions of personal privacy or individual data security.”
Furthermore, Dr Alexi Drew, in a brilliant report commissioned by Unite the union, found that risks of data transfer and data collection naturally, obviously and directly create risks of surveillance, blackmail and economic intelligence gathering.
Of course, in Three, the CK group already runs a mobile company, but the Three-Vodafone merger will give the CK group a 49% share in a combined company that will run some of the most sensitive mobile and data contracts in the country, including NHS 111, police departments, the Ministry of Defence, the Ministry of Justice, and the monitoring system in the Cabinet Office. The merger will radically extend CK Hutchison’s access to UK telecoms data from 9.5 million users to more than 27 million users—an almost threefold increase in the number of users, and their data, to which the CK group will have access. These are not just worries that we should be debating in this House, but worries that have already prompted our allies to act. On 15 September last year, President Biden announced that the risk of access to Americans’ private data would be a factor in blocking investment deals.
On Tuesday, the National Security and Investment Sub-Committee of the Business and Trade Committee held its first ministerial meetings and hearings with the Minister of State, Cabinet Office, the hon. Member for Wealden (Ms Ghani). That was the first chance that we as a House have had to cross-examine a Minister on the UK investment screening process. In that cross-examination, I put it to the Minister that our investment security process is now out of date, and asked her whether there is a case for updating the investment security regime in the light of modern threats as we now understand them. She said, “Yes”, and also that
“the regime we have at the moment is pretty robust, but it started off a couple of years ago, and we need to be aware of how new technologies could be an issue that we need to incorporate into the process.”
She went on to say that
“I have a personal view; I do think that we should be further investigating the issues around data capability”
and concluded that
“My personal view is that the accumulation of data against citizens of the UK is something that we need to explore if it can be exploited.”
There we have it: the head of MI6 is warning about the risks of China exfiltrating data; our allies are putting up and updating investment security regimes to stop Chinese access to data; and out of an abundance of prudence, we are blocking companies such as Huawei and TikTok because we are worried about Chinese access to data, yet the Vodafone-Three merger would allow a group with strong links to the Chinese state unparalleled access to data that flows through contracts with the Ministry of Defence, the Ministry of Justice and the pan-Government protective monitoring service for the Cabinet Office—
Liam Byrne
Along with the police. To cap it all, we now have a Minister warning that our investment security regime is out of date with the threats as we now understand them.
Sir Julian Lewis (New Forest East) (Con)
I am very grateful to the right hon. Gentleman for bringing this debate before the House. I am here primarily to listen, rather than contribute, but it is overwhelmingly clear that the relatively new Investment Security Unit is tailor-made to consider a merger proposal such as this one.
However, does the right hon. Gentleman realise that, if he gets his wish and the Investment Security Unit does consider the merger proposal, the Intelligence and Security Committee would be blocked from scrutinising the work of that unit? The Government originally said that all its work should have been overseen and scrutinised by what was the Business, Energy and Industrial Strategy Committee. The unit is now in the Cabinet Office, but even now, we are still not being allowed to scrutinise it. There is something very strange, if not sinister, going on. We have demanded the right to look at the classified elements of that unit’s work.
Finally, if the right hon. Gentleman were allowed into a secure room to look at the documentation that will come before the Investment Security Unit, if it is ever allowed to look at this deal, does he believe that his looking at that documentation without cleared staff, without being able to take notes and without being able to go away and discuss it with anybody else—as we on the Intelligence and Security Committee can do under our special regime—would amount to effective scrutiny of something with such clear security implications?
Liam Byrne
I am very grateful to the Chair of the Intelligence and Security Committee for that intervention. As the Chair of the National Security and Investment Sub-Committee, I have to warn the House that I do not believe we have access to the information that would allow us to scrutinise Government decisions on investment security effectively. His Committee’s report on China put it rather well:
“the Government does not want there to be any meaningful scrutiny of sensitive investment deals”.
It reminded us:
“Effective Parliamentary oversight is not some kind of ‘optional extra’—it is a vital safeguard in any functioning Parliamentary democracy”.
I wholeheartedly agree with the right hon. Gentleman and his Committee. We have not yet finished our scrutiny process for this year, but as it stands today, I cannot give the House an assurance that we have in place an effective oversight and scrutiny regime for matters of significant consequence for the investment and economic security of our country.
The reason this issue is significant is that the hon. Member for Wealden and the right hon. Member for Tonbridge and Malling (Tom Tugendhat) have both been asked whether the Vodafone-Three merger will be assessed under the National Security and Investment Act, and have not responded. The risk is that the Government are now keeping more secrets than the companies involved.
When the Minister who is set to wind up responded to the debate earlier in the year, he said:
“I am sure that the questions raised, which are legitimate ones, will be properly taken into account…if it triggers the process under the National Security and Investment Act.”—[Official Report, 19 September 2023; Vol. 737, c. 502WH.]
In the light of the warnings the House has heard this afternoon, of what we now know about the CK group, of our allies updating their security investment regimes and of the Minister of State, Cabinet Office, the hon. Member for Wealden telling us that she does not think the investment security process is fit for the threats we now face, it is incumbent on the Minister today to assure us that this deal is being called in for the hardest of scrutiny by the Investment Scrutiny Unit in the Cabinet Office. As I understand it, the Act does allow the Minister to update the House on what he is doing, and I call on him to provide us with the information that could put our minds to rest, if indeed the decision is not to block the deal, for which there is a good case.
There are two further points: one is about competition and one is about investment. Successive research that we on the Business and Trade Committee have seen shows that there is a material negative impact on competition when the number of mobile network operators goes from four to three. There was disagreement in the evidence we took as a Committee, but particularly persuasive was the evidence from Professor Valletti, who is the former chief competition economist of the European Commission. He bluntly warned us:
“I have studied it, I have published about it and I have found no evidence that tells us that by consolidating there is more investment. Instead, I have found that every time there is a merger, prices go up.”
His research shows that prices decline slower in markets with three mobile network operators compared with those with four. Unite research confirms that prices are 20% higher in European countries with three rather than four networks.
The final point is about investment. We do not have enough investment in our mobile network infrastructure, which creates big problems for our constituents. Both Vodafone and Three have promised that this will lead to a surge of new investment. The challenge, I have to say, is that the investment being proposed does not look materially bigger than the investment that Three and Vodafone are each already proposing. The risk is that this is funded through 1,000 to 1,600 job cuts, which is the number of job cuts that Unite the union has estimated. Certainly, as Professor Valletti has found, there is not much evidence that consolidating networks improves investment.
The Deputy Prime Minister has called for evidence and thoughts about how the investment screening and security regime needs to be updated. This is an important debate about the economic security of our country in a very different world. We have heard enough about the risks that this new merger presents. We have a black box, frankly, when it comes to the process by which the Government judge these threats. I do not think that that is a satisfactory position for the House to be in. The House needs some reassurance that this proposed merger will get called in under the National Security and Investment Act for the hardest possible scrutiny, and if there is any hint of a risk, let us be prudent and block the deal.
Chris Loder (West Dorset) (Con)
It is a pleasure to be called in this debate. How pleased I am to follow the right hon. Member for Birmingham, Hodge Hill (Liam Byrne). I offer my belated congratulations on his appointment to the Business and Trade Committee and endorse his comments on the security nature of the potential effects on this country. However, my remarks will be channelled more to understanding the potential effect of the merger on our constituents and consumers. I particularly thank Which? and others for providing insights to my contribution to this debate.
Will this merger be good or bad for all of our constituents? That is the question to ask. It is very clear from the briefings that Vodafone and Three have offered that their core aim is to advance the roll-out of 5G, or at least that is what they say. Some of us in this House have been in two debates already this week about connectivity and the issues that we face across the United Kingdom, particularly in rural areas. We are asking ourselves whether we should be allowing the rigorous commercial pursuit of 5G, when there are some people in the country who are lucky to have 3G, let alone 4G. Should we be enabling and allowing enormous businesses that will become still larger to have free licence to forget rural parts of the country, in my case rural West Dorset?
There is such as a thing as the universal service obligation. It is meant to protect those who are in the worst possible situation with respect to connectivity. That, I am afraid to say, does not appear to be working, and we should ask ourselves why. Increasingly, it is my opinion that we have a weak and ineffective regulator that is not protecting the rights of consumers and residents. I find it incredible, for example, that the Vodafone map says that certain parishes and villages are covered with a mobile signal, when in actual fact they are not, and Ofcom, the regulator, does nothing about it. Because the map says that, it often obviates the need to provide connectivity for those people.
I emphasise the point that this merger will give a third of the UK market to one firm. That is absolutely incredible in this day and age, when we are clearly moving in a technological direction where new developments and innovations are key. The use of mobile phones—Androids and so on—is increasing, and the fact that we are, in effect, entrusting a third of the nation’s connectivity to one firm is questionable.
We need to understand some of the experiences that this nation has had so far with companies such as Vodafone. It is relatively common knowledge that there is a big question about Vodafone’s contribution—or, should I say, lack thereof—to the Exchequer. It pays, as far as I can see, no corporation tax for being a multibillion-pound organisation. In fairness, it will say that it invests a lot of money in infrastructure in the country, and I am not disputing that point. However, we should ask ourselves whether it is right to enable a business to enlarge still further when, I assume, it will continue to operate on the same guidelines, under which it pays little, if any, corporation tax. We should not think that this is new. From my research, I found that this situation first arose in 2012. This has already been going on for 11 years, and it is important that the House takes these matters into consideration as part of this debate.
The scale of investment that we have seen so far, as far as I can see, is frankly a bit of a joke. The investment that I have been told is forthcoming in my constituency is something that I just don’t see. Indeed, Vodafone itself had to apologise for basically misleading me and for guaranteeing that we would fix various connectivity issues in certain parts of my constituency. It is a real concern to me that we are in this situation, particularly when I want to research this matter and it always refers to the currency in euros rather than in pounds. I invite hon. Members to look on the Vodafone website to research this and understand it. It really does give me cause for concern.
Navendu Mishra
I am listening to the hon. Gentleman’s contribution with great interest. He made a point earlier about misleading information. The House has been told that the primary function of this merger is to increase investment in infrastructure in the UK. Does he agree that the primary function of this merger is pure profit—it is basically corporate greed?
Chris Loder
I thank the hon. Member for his kind intervention. He almost takes the words out of my mouth, as I go on to the next part of my speech.
The case that is being put, as I understand it from the brief received from both Vodafone and Three, is that the merger will support increasing amounts of investment. They go on to say further that the merger will generate £700 million of savings. When we start to unpack it, what we are actually dealing with here is massive job cuts. We expect to see up to 1,600 people lose their jobs in the United Kingdom alone. The right hon. Member for Birmingham, Hodge Hill mentioned that, but what he failed to include in his remarks is that a programme of 11,000 job cuts is already going on globally within Vodafone. While I am not the biggest advocate or supporter of Unite the union, I can well understand and agree with the point that the hon. Member for Stockport (Navendu Mishra) makes.
I will progress my remarks to talk about the effect on the consumer in respect of prices and mobile phone bills. It is right that we consider what has happened in the past few years in Australia, where Vodafone has undertaken a merger with TPG. The Australian Competition and Consumer Commission report showed that Australian prices all rose and that investment fell. I understand that the rise in prices is contested by some operators, but I could not find it contested that investment fell—and not just by a little bit, but by 45%. That is a considerable amount, and it gives me cause for concern when looking at this situation. We have to ask ourselves: to what extent do we believe what we are being presented with? That gives me even greater concern when I consider the national security matters that the right hon. Member for Birmingham, Hodge Hill raised.
My constituency of West Dorset has 400 square miles and 132 parishes, and we have ropey coverage, to say the least. I have had to look in the mirror and ask myself, “Will this merger help the 82,000 constituents who depend on mobile connectivity increasingly every day?” Some 97% of the businesses in West Dorset are small or micro-sized. They do not have enormous amounts of cash to put in substantial investment, so that question is important.
For me, given what I have seen so far, it comes down to a question of trust. That is why I have a slight problem with what is being presented to us. Vodafone’s coverage map for my constituency is wrong. I have contested it, and I have gone to the regulator about it. Vodafone says that most parts of rural West Dorset have a signal. I am sorry, but the places that it indicates do have signal do not. That shows how weak the regulator Ofcom is in dealing with this issue. It is allowing operators to get away scot-free under the guise of a universal service obligation that is not delivering what is necessary for those people. We find it not just once or twice, but time and time again.
I went to visit the small village of Stoke Abbott, which is on the outskirts of the beautiful town of Beaminster, earlier in the year. I was pleased—it was somewhat surprising, I thought—to have secured a number of commitments to improve that village’s appalling level of connectivity. Regrettably, Vodafone had to correct itself, because it had misled me. It would no longer continue those improvements, and it went on to say that it believed that the problems would be solved by improved 4G coverage. Well, I am afraid that those improvements have not happened to date. As I said, this comes down to trust. Vodafone did apologise for its somewhat disingenuous statements, but that shows what we are dealing with here, and it also exposes the weakness of the regulator in addressing these issues in a meaningful way.
Given my personal experience of the organisation and how it treats my constituents, why would we want to afford it the ability to become larger and more dominant in the market? In my opinion, it has such a bad record of customer service to local people. I do not know if anyone else here has the joy of being a Vodafone customer, as I do. Its customer service hotline is known as 191. If I ring that number, it is virtually impossible to speak to someone to get help. Many of my constituents have had the same experience. It is just incredible that, if they are fortunate enough to get through to someone who can help them, they are directed to what they call the director’s office, which is just a shambles. It takes months to resolve the slightest difficulty. The situation that I outlined earlier, whereby coverage is not as some say it is, is appalling.
One of my fine constituents from Maiden Newton got in touch with me only a few days ago to share her experience. In fairness to Vodafone, she is a customer of Three, which, by and large, provides its customers with a reasonable service. My constituent put it well in her email:
“How can we level up as a rural community when it’s hard to tune in to digital radio or make a phone call? As a small business owner I often have to do business on the move, but find I can’t access anything as the signal is too poor.”
She goes on to say that, clearly, something has happened in the last six months. The network provider had told her that work needed to be done on a mast in the area, but that still has not been sorted. These issues just go on and on.
I was grateful to Three and Vodafone for providing me with the briefing. I thought it was reasonably interesting, but I was looking for the word “customer” in there, and I could not see it once. If anybody else was able to find it, I will stand corrected, and I may need to get my eyes tested again. That indicates to me the real drive behind the merger. The briefing that we have been provided with, for which I am grateful, shows what this is about.
Richard Foord (Tiverton and Honiton) (LD)
The hon. Member and I are neighbours, and I congratulate him on talking about the rural character of his constituency and how the merger might affect his constituents as customers. I also suggest that it would affect his and all our constituents as citizens because, should the merger take place, it would make users of this phone service subject to China’s national intelligence law, article 7 of which states:
“Any organization or citizen shall support, assist and cooperate with the state intelligence work”.
That will be the obligation on CK Hutchison and its employees. Does he agree?
Chris Loder
I thank the hon. Gentleman for his kind intervention. The right hon. Member for Birmingham, Hodge Hill made a lot of those points, along with my right hon. Friend the Member for New Forest East (Sir Julian Lewis), and I agreed with them earlier in my speech. This area needs much greater scrutiny. I remember not long after first coming to this House a few years ago, we had considerable concern about the behaviour of companies that was taking place, or could take place, that would put our national security at risk. That is why I support the comments made earlier by both right hon. Gentlemen.
Sir Julian Lewis
On that point, I recall that in 2021, while the National Security and Investment Bill was going through the House, the Government repeatedly said from the Dispatch Box that in any conflict between economic interest and national security their policy was that national security would come first. That was the whole point of bringing in the legislation. Now it appears that there is even a question mark on whether the structures set up in the legislation will examine this proposed questionable deal, let alone allow it to be effectively scrutinised by Parliament once they have done that examination.
Chris Loder
I thank my right hon. Friend for his intervention. He makes a very valid point. I recall the debates we had in the House several years ago and I think they were very meaningful. I hope that my right hon. Friend the Minister will respond to some of the genuine concerns that a number of us in this House have.
In its first line, the Vodafone and Three brief states that the current UK telecoms market—their own industry—is dysfunctional, and that consolidation is needed to remedy that. I regret to say to the House that, having gone through that and some of the excellent briefings received from other organisations, I am not convinced that the merger is the right thing to do. A number of points have been made on national security, competition and the consumer that indicate to me that it is not necessarily in the interests of the country or the consumer. The brief confirms that, talking about billions of pounds—or euros, on the website—which appear to be the only thing they are interested in. It is of huge concern to me that we are going from four operators to three, given the situation we face. I hope my right hon. Friend the Minister will consider what action to take so that the regulator not only has proper teeth to sort out the issues I have mentioned but that in any future decisions genuine consideration is given to whether a potential merger is in the interests of the country and our constituents. I am afraid that at the moment I am not convinced that it is the right thing to do.
Navendu Mishra (Stockport) (Lab)
I refer the House to my entry in the Register of Members’ Financial Interests, in particular my membership of Unite the union. I am grateful to Unite for providing a detailed briefing on the merger. It has been campaigning on the issue for a long time, because, as both Members—my right hon. Friend the Member for Birmingham, Hodge Hill (Liam Byrne) and the hon. Member for West Dorset (Chris Loder)—who have contributed so far mentioned, almost 1,600 jobs could be lost. I thank my right hon. Friend the Member for Birmingham, Hodge Hill for securing the debate. He has done a lot of work in the background, including as Chair of the Business and Trade Committee.
There are two key points I want to cover. First, the merger is bad news for customers. There are 650 constituencies represented in this House and I believe this merger impacts every single one. If the merger goes through it will mean higher costs for consumers. Currently more than 2.2 million households in the UK are struggling with the cost of mobile services, so it is not as if they are in a good position to start with. The merger will reduce competition and increase monopoly and pricing power for these operators.
I want to say a little about Greater Manchester, because that is the part of the world that I represent in the House. A Liverpool University study found in 2020 that as many as 1.2 million residents of Greater Manchester alone faced some form of digital exclusion, while the Office for National Statistics has found that 40% of Greater Manchester benefit claimants have very low digital engagement and 23% of residents are not using digital services because of lack of money. This merger will increase prices and dramatically worsen the situation.
The hon. Member for West Dorset talked about his patch. He represents a rural part of England, while my constituency is more urban, but there will be people in each and every constituency who are digitally excluded, in many cases because of a lack of financial resources. My right hon. Friend the Member for Birmingham, Hodge Hill mentioned the research conducted by the former chief competition economist at the European Commission. According to that research, we can expect an average increase of about £300 in mobile phone bills. Reference has been made to Vodafone’s customer service. I am not a Three customer, so I do not know what its customer service is like, but we are looking at nearly 1,600 job losses. Given the cost of living crisis, not only is the merger terrible news for UK customers, but the livelihoods of the people who work in these businesses is on the line.
I will not repeat many of the points that have already been made about national security, but we should be clear about the fact that Three is owned by the Hong Kong-based CK group. If the merger goes through, the new entity will have access to the data of 27 million UK nationals, as well as highly classified data under Vodafone’s existing contracts with, for instance, the national health service, the Ministry of Defence, the Ministry of Justice, and several police forces. I have been campaigning on this issue for a long time, and was lucky enough to secure a Westminster Hall debate on it earlier in the year. In July, following my campaign to stop the merger, I wrote to the chief constable of my local force, Greater Manchester police, about its contract with Vodafone. I received a speedy response, and I am grateful to the chief constable, Mr Watson, and to the force.
The chief constable told me that under section 17 of the Local Government Act 1988, forces are not permitted to take non-commercial considerations into account when awarding contracts. The exclusions set out in subsection (5) are wide-ranging, and without intervention from the Secretary of State on specific issues, public bodies must adhere to the rules set out in the Act. I am quite concerned about the fact that my local police force has a contract with Vodafone, as have several other forces in England. The issue of the data transmitted through Vodafone from those police forces, as well as the NHS, the Ministry of Defence, the Ministry of Justice and other public bodies is a very serious matter. I could go on and on about CK group’s close personal links with the Chinese state and the Beijing-supported Hong Kong Government, but I will not go through them again.
The Chair of the Intelligence and Security Committee, the right hon. Member for New Forest East (Sir Julian Lewis), made this point earlier, but I would like to reiterate that no parliamentary scrutiny of the security approval process is under way. The Government are thought to be assessing the merger under the National Security and Investment Act 2021, but have refused to inform Parliament about the process or how they will make their decision. I am told that the Prime Minister and senior Ministers have held closed-door meetings with CK group executives in the last 12 months. I think right hon. Gentleman used the word “sinister”, and I agree with him: I too think that there is something quite sinister going on. The Government are not being upfront.
While I am quoting what has been said by earlier speakers, let me quote the hon. Member for West Dorset, who observed that the regulator was weak. I agree with him entirely, but I also think that the Government are weak. The Government should get a grip on the situation, because it is terrible news not only for people in each and every constituency but for the nation.
This merger would result in Chinese state interference in the UK, and it would give the CK group access to sensitive national Government, local government and public body contracts. The merger is not worth the risk. My understanding is that there is no evidence that this merger would increase investment. We have already heard about grey spots and areas with no 5G, 4G, 3G or even simple mobile coverage at all, so we need to ensure that Parliament gives proper scrutiny.
This merger is bad news for British customers and bad news for Britain, but I fear the Government are, yet again, asleep at the wheel on another crucial issue.
Kirsty Blackman (Aberdeen North) (SNP)
I congratulate the right hon. Member for Birmingham, Hodge Hill (Liam Byrne) on securing this important debate, which I am glad the Backbench Business Committee has granted. The SNP has concerns on a few fronts. I will not repeat the stats, but I almost entirely agree with what he said. I thank Unite for its work and for its briefing.
There are various issues with the merger, particularly relating to consumers and security. We were pleased when, back in June or July, the Minister talked about regulatory hurdles that have to be cleared for this merger to take place, but those regulatory hurdles are not sufficient. It should not and cannot be a rubber-stamping exercise, so the comments we have heard about parliamentary scrutiny are very important.
The right hon. Member for New Forest East (Sir Julian Lewis) has made me even more concerned about the possible lack of scrutiny. We are, after all, a parliamentary democracy, so we should be scrutinising the merger. Those Members who have the access and the ability to scrutinise the merger, with the assistance of confidential documents, should be doing this, because the merger clearly has a significant impact on national security.
The Government published their annual resilience report just a few weeks ago, and people need to be able to communicate with one another. Consumer data is important, and it is likely that a Chinese company will have access to 27 million people’s data, which is pretty terrifying, but it will also have access to mobile masts. The new mobile masts that are being put up as part of the shared rural network will be owned or are owned by a number of different companies, one of which would be this Three/Vodafone conglomerate. If it happens, the conglomerate would have roughly a third of each mast, which will cover a huge swathe of these islands. If there were any sort of attack on the masts, large chunks of the population would not be able to access 4G. The same issue applies to data security. What data is associated with this critical infrastructure, and what changes would be caused by this possible merger?
There are a couple of other reasons for concern. The risk of job losses is incredibly important; it is not of secondary importance. We are in a cost of living crisis, and having more jobs at threat when people are already stretched, already struggling, is pretty concerning as it puts them in an even worse position.
The hon. Member for Stockport (Navendu Mishra) talked about his local police force’s Vodafone contract. The Procurement Act 2023 has security provisions that mean the Secretary of State is able to proscribe companies that have significant issues. However, given the amount of trouble we had getting the Government to do anything about Huawei, in relation to 5G, and Hikvision, in relation to CCTV cameras, I have no faith that the powers in the new Procurement Act could or would be used, and certainly not with any speed. We do not want to end up with these decisions made and the merger approved in some way, only for the Government to decide to backtrack on it. That would be even worse than if they decided to say no at an earlier point. I do not want us to end up realising that the risk has been created and that we need to try to sort the mess out. None of us wants to be in that position. I am not saying that the deal is terrible and should never go ahead. What I am saying, for all those reasons, is that there should be proper scrutiny, because there are significant concerns about China’s potential interference in critical national infrastructure.
On the consumer issues, the fact that prices are 20% higher in those European markets with only three major mobile phone companies instead of four is especially concerning, given the cost of living crisis, as the hon. Member for Stockport made clear. This deal should be properly scrutinised in order to best serve the public and our national security, and to protect our critical national infrastructure into the future.
Chris Evans (Islwyn) (Lab/Co-op)
I thank the Backbench Business Committee for granting time for this debate. In particular, I pay tribute to my right hon. Friend the Member for Birmingham, Hodge Hill (Liam Byrne) for raising this issue and for his work as the new Chair of the Business and Trade Committee. I want to add my congratulations to him, however belatedly, on his appointment. He gave a comprehensive outline of the security implications of the proposed merger.
We had a comprehensive intervention from the right hon. Member for New Forest East (Sir Julian Lewis), my fellow Welshman. Whenever he speaks, we should all listen. He speaks with some authority, as both the Chair of the Intelligence and Security Committee and a distinguished former Chair of the Defence Committee.
The hon. Member for West Dorset (Chris Loder) raised some important points about rural broadband connectivity and his frustrations with companies and the regulator, which many of us share.
My hon. Friend the Member for Stockport (Navendu Mishra), mentioned some quite shocking statistics. Some 2.2 million households are struggling with mobile coverage, while in Greater Manchester—which he represents and speaks so passionately about—1.2 million people are facing digital exclusion, which is something we should all be concerned about.
There can be no doubt that the proposed merger between Three and Vodafone is not without controversy, as we have heard. We are often quite rightly chided when we throw barbs at each other in this House. Often, the House is at its very best when we are allowed to develop our arguments and when we listen in a spirit of respect for one another, as we have this afternoon, not just in this debate but in the previous debate. Even though I only agreed to step in for my hon. Friend the Member for Rhondda (Sir Chris Bryant) on Monday, my office has been absolutely inundated by those on both sides of the argument. There are those who believe that the merger will allow for more effective competition, while others, such as Unite—which my hon. Friend the Member for Stockport mentioned, and which has put a huge effort into the campaign—believe that it will raise prices to the detriment of consumers and result in job cuts across the board. It is my understanding that the Competition and Markets Authority is investigating, and the call for views on the merger ended on 1 November.
I have listened to the debate closely, and it seems to me that the potential merger rests on two central questions. First, will consumers and the industry benefit from it? Secondly, who has access to the UK’s mobile networks? Let me turn to the first question. The merger will shrink the market, resulting in only three major competitors instead of the present four. The new company would be the largest in the market, boasting over 27 million customers. This comes against the backdrop of tariff increases this year. O2 has increased prices by 17.3%, while EE, Vodafone, Three and BT Mobile have increased prices by 14.4%. It is not just on contracts that customers are losing out; people who use their phones infrequently are getting less value for their money. Ofcom has also stated that the year-on-year real-terms increase in pay-monthly, SIM-only contracts is 13%.
A smartphone is no longer a luxury, but an essential piece of everyday life. It is not something that we as a society can allow people to be priced out of having. Children are taught on smartphones. Interviews take place over the phone. Emergency services are called on smartphones. If Three and Vodafone merge and continue their respective trends of increasing prices over inflation, that could price many out of the necessity of having a phone.
From an industry perspective, Unite the union estimates the merger will cause 1,000 to 1,600 job cuts. Vodafone is also in the process of cutting 11,000 jobs globally and has acknowledged that the proposed merger would see duplication with head office jobs. Both companies claim that there is more competition in the market than it first appears. Although there are only four mobile network providers, there are numerous mobile virtual network operators, such as Giffgaff, that can buy access to the infrastructure of the big four at incredibly competitive rates to offer competitive pricing. The mobile virtual network operators believe that a third big player in the market would be better for competition.
Furthermore, Three and Vodafone claim that the merger is necessary to invest in 5G, aiming for an £11 billion investment over a decade. While the investment target seems positive, it remains largely uncertain. Past mergers in other markets have not always resulted in increased investment. Notably, the European Union’s competition directorate blocked CK Hutchison’s attempt to acquire O2 from Telefónica in 2016. Competition involves more than just three players vying for business. The policy of local coverage often limits consumer choices. With fewer players in the market, pricing decisions might prioritise company profits over consumer value.
Kirsty Blackman
The hon. Gentleman mentioned the necessity of mobile phones for life. When interacting with Government services, for example going through the Jobcentre system, people have to be able to access the internet, although many of them are earning very little or nothing. Does he share my concern that the reduction in the number of companies in the market will hit hardest those people who are least able to afford it?
Chris Evans
I absolutely agree. At the start of my speech, I alluded to what my hon. Friend the Member for Stockport said about 1.2 million people in Greater Manchester being digitally excluded. We do not know the figures nationwide, but that is a serious worry to me and something we have to bear in mind when we talk about such mergers. I will develop that argument further when I sum up. With fewer major players in the market, pricing decisions might prioritise company profits over consumer value. I hope the issues raised will be thoroughly examined by the CMA in its investigation.
Let me turn to the second key question, about access to the UK mobile networks. It is important that the Government safeguard national and personal data if the merger moves forward. Recently, Vodafone secured a contract to provide video conferencing and recording services at UK military courts. If the merger proceeds, Three would then hold them as well. That becomes significant when we learn that CK Hutchison Holdings, the owner of Three, is a conglomerate based in Hong Kong and registered in the Cayman Islands, established in 2015, as mentioned by my right hon. Friend the Member for Birmingham, Hodge Hill.
At this early stage, it is only right to ask, in light of national security concerns that have been raised in this House and elsewhere, whether any assessment has been made of CK Hutchinson’s connections with the Chinese state. If so, does the merger pose any risk to individual security or that of the nation? Would the merger involve excluding Government contracts from the merger to ensure data security? These are crucial points that demand careful consideration and a robust plan to protect sensitive data and national interests. Is the economic security sub-committee of the National Security Council looking at the merger? As this decision is a matter of national security, will Parliament have an active role in this decision-making process?
Before the Minister responds, I draw his attention to a report of the Intelligence and Security Committee. The Chair of the Committee, the right hon. Member for New Forest East, will correct me if I am wrong, but it says:
“Effective Parliamentary oversight is not some kind of ‘optional extra’ – it is a vital safeguard in any functioning Parliamentary democracy”.
Therefore, I hope the Minister will assure us that Parliament will be engaged and informed throughout the significant decision-making process. That is a hugely important point—I cannot emphasise that enough—given the potential national security risk if the largest mobile network in the UK is significantly controlled by a foreign company.
Ultimately, the decision on security issues rests with the Investment Security Unit in the Cabinet Office, with final approval resting with the Prime Minister. I hope the Prime Minister will consider the sensitive material involved in the merger including, but not limited to, the data from 27 million customers, along with contracts for the NHS, the Ministry of Justice and the Ministry of Defence. Whether the merger goes ahead remains to be seen, but many questions have yet to be addressed. In winding up, will the Minister shed some light on the vital issues raised today in this vital debate?
The Minister for Data and Digital Infrastructure (Sir John Whittingdale)
I congratulate the right hon. Member for Birmingham, Hodge Hill (Liam Byrne) both on his appointment as Chair of the Business and Trade Committee and on bringing this issue to the House today. There is no question but that the issues under debate today are very important. The outcome of the possible merger will have implications for thousands of consumers across the country, and the right hon. Gentleman raises perfectly valid questions.
To some extent, this debate is something of a reprise of the one initiated by the hon. Member for Stockport (Navendu Mishra) in Westminster Hall last September. I am afraid that I am likely to disappoint the right hon. Gentleman, because I am not able to add very much on the process to what I said back in September. He will be aware that we have a long-standing and robust system for looking at the competition aspects of mergers and acquisitions. As that is conducted independently of Government, it has always been the case that Ministers do not comment on the competition aspects, but rather leave it for the regulatory body—in this case the Competition and Markets Authority—to make recommendations. Ministers will then reach a decision once that process has been completed.
On the national security implications, we also have an extremely robust system in place, but it has always been the case that the Government do not talk about whether inquiries are taking place. All I can tell the right hon. Gentleman is that, like all other national security matters, we do take telecoms security extremely seriously.
Liam Byrne
I am grateful to the Minister for giving way. Things have moved on since the debate sponsored by my hon. Friend the Member for Stockport (Navendu Mishra). On Tuesday, the Minister’s colleague, the Minister for Industry and Economic Security, the hon. Member for Wealden (Ms Ghani), told my Committee that she thought that the investment security regime was not fit to match the threats that we now see. Given that the Deputy Prime Minister has said that there needs to be an overhaul of the investment security regime—he is calling for that evidence—and given that the Minister responsible has said that she does not think the regime is currently fit for the threat that we now face, it is essential that the Minister today is able to give us some reassurance that the questions arising from this merger will be addressed by the Investment Security Unit, not least because Parliament has very limited oversight of the decisions that Government will arrive at.
Sir John Whittingdale
The overall question of the efficacy of the investment security process is for the Cabinet Office. The right hon. Gentleman may well wish to pursue his inquiry with the Minister responsible. I have no doubt that my right hon. Friend, who chairs the Intelligence and Security Committee, will also have views about the process that the Government have put in place. All I can say to both Select Committee Chairs is that, in relation to this specific merger, we cannot comment on whether it is currently undergoing scrutiny through that process, but we believe that the process that is available for the examination of mergers of this kind on national security grounds is robust. Beyond that, I cannot really go.
Sir Julian Lewis
I am not asking my right hon. Friend to say whether this particular proposed merger is being investigated. What I am asking him to say is whether the Government accept that there is a significant national security dimension to any proposal for a merger involving a major shareholding by a Chinese subservient company.
Sir John Whittingdale
I hope that my right hon. Friend will forgive me; I am not sure that I can even go so far as to say that. It is on the record that the Government believe that foreign ownership of major critical infrastructure raises security concerns, which is precisely why the process was put in place and the Investment Security Unit was set up. We believe that we now have the ability to determine whether there are serious national security concerns, and if it is determined that there are, powers are available to the Government to take action to protect our national security. I think the answer is yes, but I do not want to be drawn into particular countries or companies. If he will forgive me, I will leave it at that.
Several Members raised wider questions. My hon. Friend the Member for West Dorset (Chris Loder) is right that we need to look at the context in which the merger is possibly being considered. His test of whether it is good for his constituents is a perfectly valid one. As he observed, this is the third time we have debated connectivity in 24 hours. That is a measure of how important it is to people. It is the Government’s very firm view that the roll-out of 5G connectivity has huge potential for such things as public services, industry, transport and education. There will be enormous benefits to obtaining the widespread adoption of 5G—benefits that might amount to £159 billion by 2035.
That is why the Prime Minister’s commitment to the UK becoming a science and technology superpower will deliver benefits for everybody in this country. Connectivity, and the availability of mobile telephony, lies at the heart of that. We are already beginning to see benefits from 5G, but the Government are clear that we wish to move beyond the current basic, or non-stand-alone 5G, towards stand-alone 5G. Considerable investment is taking place: something like nearly £2 billion is being invested by the mobile operators in enhancing and improving their networks, and 5G is now available from at least one operator outside 85% of premises.
Navendu Mishra
I understand the Minister’s point about 85% 5G coverage, but what are the Government doing about the millions of people in poverty who cannot access 5G, 4G, 3G, or even simple broadband? Does he believe that the merger will mean lower prices for British consumers?
Sir John Whittingdale
I will come on to digital exclusion, which the hon. Member has rightly focused on as a major issue facing the country. Leaving aside whether the merger is a good idea, that is a challenge that we are determined to address.
We believe that very good progress is being made on coverage. As I think was expressed in both debates yesterday—certainly my hon. Friend the Member for West Dorset has raised this several times—the figures that we are given on the success of extending coverage do not always match the experience of the people living in those locations. Coverage predictions are made as a result of computer programmes simulating the way mobile signals travel, and signals can be blocked by obstructions. For that reason, sometimes the figures are not as good, which concerns us. That is why we said in the wireless infrastructure strategy that Ofcom needs to improve the accuracy of its reporting on mobile coverage and network performance. We will pursue that actively with Ofcom.
Chris Loder
I think my right hon. Friend is agreeing that some of Ofcom’s assumptions on coverage are a little questionable. Given that the universal service obligation is based on those assumptions, can he help us to push hard to get that resolved? It is negatively affecting so many people in rural areas, who are being told on a map that they are getting a reasonably good signal, but in reality are not.
Sir John Whittingdale
Ofcom teams go out and test the predictions that are made about the extent of coverage. They do not just accept what the computer tells them; they visit various locations. However, Ofcom needs to do more. Although I am not going to be in this post for more than another few days, I do have a meeting with Ofcom before I hand back the baton to my colleague and hon. Friend the Member for Hornchurch and Upminster (Julia Lopez). The issue was already on my list to raise with Ofcom, and I will draw the chief executive’s attention to the point my hon. Friend makes.
As I have said, we have set out our ambition to achieve stand-alone 5G across all populated areas by 2030. We believe that that will bring real benefits to the United Kingdom, but it requires billions of pounds of investment, which has to come from the commercial sector. Therefore, we have also set out a suite of measures to try to help operators to deliver that ambition. We also have a 10-point plan for rural connectivity, and I pay tribute to my hon. Friend the Member for Barrow and Furness (Simon Fell) , who has worked very hard as the rural connectivity champion.
This debate has focused on security, and that is obviously a key factor that we need to take into account. The Government absolutely recognise the importance of having secure and resilient digital infrastructure. However, as I have already indicated, we think that thanks to recent legislation the UK now has one of the strongest telecoms security regimes in the world. The Government have used the powers of the Telecommunications (Security) Act 2021 to set out clear timetables for the removal of Huawei from our 5G networks by the end of 2027. The Act has also established a new cyber-security framework to improve the security and resilience of public telecoms networks and services, which is now in force. Following the Government’s decision to remove Huawei from UK 5G networks, coupled with the need to mitigate the risks of long-term consolidation in the telecoms equipment market, our 5G supply chain diversification strategy sets out a plan to ensure that the UK has a healthy and competitive telecoms supply chain market.
That plan is backed by the £250 million open networks R&D fund, which will accelerate the adoption of open radio access networks technology. That will help to bring more suppliers into the market and to diversify, making it easier to reduce our dependency. However, I assure the right hon. Member for Birmingham, Hodge Hill that we are committed to protecting our networks, shielding our critical national infrastructure and understanding how new networks are designed, built and managed securely.
The possible merger deal between Vodafone and Three, as I have said, is subject to regulatory approvals to assess the risk to national security, competition and consumers in the way that all mergers of its kind would be. While we of course welcome investments where they support growth and jobs, the security of our critical infrastructure is also of prime importance. However, I am not able to go further than I have already done in answering the right hon. Gentleman’s questions about precisely the process by which that is measured.
These are other aspects to the merger. The hon. Member for Stockport, I think, raised the possibility of price increases, and hon. Members have commented on the consequences of a merger, also involving Vodafone, that took place in Australia. The only thing I would say is that every market is different, and therefore what happened in Australia cannot be used to draw any conclusions about what might happen here— although, according to the Australian Competition and Consumer Commission’s latest report, in fact mobile service prices have stayed pretty much unchanged between 2020 and 2022.
Affordability, which was raised by the hon. Member for Stockport and others, is something that we take seriously. He is right that the possession of a mobile phone is becoming an essential of life that, during a cost of living crisis, people may find it difficult to afford, but I recognise the efforts that have been made by mobile operators, including Three and Vodafone, to support customers by bringing forward social tariffs for those on low incomes, as well as by donating millions of gigabits of data, and providing devices, to the National Databank.
There are currently 27 providers of social tariffs, and millions of households across the UK are eligible. I have expressed concern in the past about the low take-up of social tariffs, but I am pleased to say that it is now increasing, although there is still further work to do in bringing the possibility of a social tariff to the attention of people who may find a mobile phone difficult to afford. Mobile prices in the UK are among the lowest compared with countries such as Italy, Germany, Spain, France and the United States.
Kirsty Blackman
On the topic of social tariffs, I agree that low take-up is still a concern. When I visited my local jobcentre, I asked the staff there to ensure that they inform the people who come through the door about social tariffs. Will the Minister join me in encouraging MPs around the House to urge those working in customer-facing roles with people who are struggling financially to talk about mobile social tariffs?
Sir John Whittingdale
I am very happy to join the hon. Lady in calling for that. I recently met my ministerial colleague at the Department for Work and Pensions to discuss what more we can do to ensure that benefit claimants are aware of the possibility of going on to social tariffs.
I am afraid that I cannot say any more about the detail of the proposed merger, other than that we have well-established and robust processes in place for the consideration of both the impact on competition in the market and any possible national security concerns. I am confident that those processes will be followed, if necessary, in this case.
Mr Deputy Speaker (Sir Roger Gale)
With the leave of the House, I call Liam Byrne to wind up.
Liam Byrne
This has been an extremely useful debate. Let me conclude it by offering my thanks and congratulations to my hon. Friend the Member for Stockport (Navendu Mishra) on leading this campaign so vigorously. My thanks go to Unite the union for informing the House with such important research on the questions of national security.
Unfortunately, I fear that the debate has raised more questions than it has answered. It is a matter of concern that the Minister cannot tell us how the principles of defending our national security against bad investments apply to one specific case. This is a test case for whether our investment security regime is fit for the threat that we now face. We have heard two Select Committee Chairs tell the House that we, as parliamentarians, cannot assure the House that we can come to a judgment about whether the Government are making good or bad decisions. That is not a happy place for Parliament to be in. I am shocked that the Minister cannot tell us that a Chinese-subservient company is in any way blocked from acquiring access to the data on 27 million citizens in this country. That is a pretty poor state of affairs.
I hope that this may be the first of a few debates to come, but I pray that the Government quickly come to some new decisions about how this investment security regime operates in the future. We do not have a small yard and a high fence; right now, it seems that our security regime is a big garden and a low fence. I am afraid that in the world we live in, that is not good enough.
Question put and agreed to.
Resolved,
That this House has considered the potential merger of Three and Vodafone.