Three and Vodafone: Potential Merger

Kirsty Blackman Excerpts

Thursday 14th December 2023 Commons Chamber

[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.

[Madam Deputy Speaker (Dame Eleanor Laing)]

I call the shadow Minister.

[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?

--- Later in debate ---

[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.