Three and Vodafone: Potential Merger

Liam Byrne Excerpts

Thursday 14th December 2023 Commons Chamber

[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—

[Navendu Mishra (Stockport) (Lab)]

And the police.

[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?

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[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.

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[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.

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[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.