Proposed Merger of Three UK and Vodafone

Navendu Mishra Excerpts

Tuesday 19th September 2023 Westminster Hall

[Navendu Mishra (Stockport) (Lab)]

I beg to move,

That this House has considered the proposed merger of Three UK and Vodafone.

It is a pleasure to serve under your chairship, Sir George, and I am grateful for having been granted the debate. I refer the House to my entry to the Register of Members’ Interests. I also welcome my hon. Friend the Member for Rhondda (Sir Chris Bryant) to his new role as shadow Minister.

In July, it was announced that Vodafone and Three UK had agreed to combine their businesses, in an effort, they claim, to create one of Europe’s leading 5G networks. Although I welcome the aspiration, such a deal will have terrible consequences, with higher prices for consumers, job losses alongside inflated corporate profits, and a threat to the UK’s national security. The newly combined company would have 27 million customers, which would make it the largest mobile network operator in the UK, surpassing O2 and EE. That makes today’s debate important, as both carriers already have customers in every one of the 650 seats represented here in the House of Commons.

The announcement of the merger came only months after Vodafone had already announced 11,000 job cuts worldwide, including here in the UK. When Vodafone UK’s chief executive was subsequently asked what impact the merger would have on future job losses, he stubbornly said,

“it’s very early…to talk about job losses”

and that “some roles” might be impacted. External studies suggest that “some” could be as many as 1,600 roles. When Vodafone and Three merged with TPG in Australia in 2020, they claimed that it would accelerate the benefits of substantial network investments made by both companies, when in reality investment levels across the sector are down by 45%.

[John Spellar (Warley) (Lab)]

Is this not part of what we are seeing across the IT sector, which is what we previously saw in other industrial sectors, for example, in companies such as John Rockefeller’s Standard Oil Company? Basically, these companies drive out competition and then set their own terms and the terms of those who work in the industry. Is this not of real concern not just to consumers, but to all those concerned with the creation of those monopolies?

[Navendu Mishra]

I entirely agree with my right hon. Friend. This merger is bad news not just for UK customers, but for the people who work for both these businesses and, of course, it poses threats to national security as well.

Investment levels in the sector after the merger of Vodafone and Three in Australia went down by 45%. I ask the Minister: does the evidence therefore suggests that this will be a sensible merger here in the UK?

I want to place on the record my thanks to my union, Unite, for campaigning on this issue. It shares the concerns that so many of us have about jobs and national security, and it has consistently kept members aware of the implications since the merger was announced. According to Ofcom, 2.2 million households are struggling with the cost of mobile services. As a report by the House of Commons Library stated:

“Bills for some customers rose by over 11% in 2022. Communications consultancy Farrpoint has estimated that, based on inflation projections, bills will rise by a third over the next five years.”

Will the merger make bills cheaper for British customers? Research suggests not. The former chief competition economist at the European Commission has undertaken work showing that prices after a Three-Vodafone merger could be 50% higher. Based on average spending patterns, that means UK customers would pay up to £300 more per year on their mobile bills.

Only a few months ago, we heard that water companies were pushing for bills to rise by up to 40%. We know that electricity and gas payments almost doubled between May 2020 and June 2023, and the Bank of England chief economist recently warned that food inflation is unlikely to come down soon. Why will British customers who use Vodafone and Three have to find even more money for an unnecessary choice that has been foisted on them?

The merger is bad news not only for households’ financial security, but for the UK’s national security.

[Sir Iain Duncan Smith (Chingford and Woodford Green) (Con)]

I am grateful to the hon. Gentleman for securing this debate. I apologise to all concerned, but I have a meeting in the Treasury very shortly that I will have to go to. However, I want to ask this question to ensure that it is raised with the Minister, who will no doubt be responding to this debate.

On the security issue—as the hon. Gentleman knows, I have been sanctioned by the Chinese Government, like others—I am concerned that there should be full and due diligence on such a merger, particularly given the Cheung Kong Group and the Li family being so knowingly involved with Chinese Government committees, their contacts in the Chinese Government and having to pass data over under the national security law. Will the hon. Gentleman ensure that the key question for the Minister is that the Government are able to assure everybody publicly that this will not take place unless these security issues are clarified and are not still security issues at the end of this process?

[Navendu Mishra]

The right hon. Gentleman makes important points, and national security is vital. I pay tribute to him for his work on this issue, and to all the members of the Inter-Parliamentary Alliance on China in the House of Commons and the House of Lords who are active in that campaign group.

[John Spellar]

When there was the issue about Huawei installing its equipment, one of the arguments made was that this was the hardware, and that the telephone companies and indeed the National Security Agency would be able to keep track of the software, but these companies are now deeply involved in the software. Does that not make these systems even more vulnerable to possible influence by the Chinese authorities?

[Navendu Mishra]

That is an important intervention. I accept the point that the hardware and the software are both quite open to interference, and I hope the Minister will be able to address these concerns from Members.

Following a merger, Three’s ultimate parent company, CK Group, will gain significant control over a business that will serve 40% of the UK’s population. Evidence suggests that there is extensive collaboration between the CK Group, the Li family that controls it and the Chinese state. It is well documented that the Li family has strongly backed pro-Beijing hardliner John Lee as the Chief Executive of Hong Kong, and supported a draconian new security law that would suppress dissent. On top of this, top CK Group executives sit on Chinese Government committees and have access to the inner circle of the Chinese elite. Does the Minister feel comfortable with a hostile foreign actor potentially having access to millions of UK citizens’ data?

Last month, I wrote to Greater Manchester police, my local force, sharing my concerns about the impact that such a merger would have, and Greater Manchester police is just one of the many police forces that have contracts with Vodafone at present. I am aware that Unite the union is happy to provide a list of police forces that have contracts with Vodafone, so I urge Members across the House to contact their local force to seek assurances about security and privacy measures. I implore the Minister to meet Unite to discuss these concerns as a matter of priority.

I have grave concerns that China’s domestic and counter-intelligence laws and Hong Kong’s national security law may pave the way for China’s security services to obtain confidential data from companies such as CK Hutchison. While in theory UK law prohibits the collection or transfer of individual user data, in practice there have been numerous examples in the UK and elsewhere where data has been accessed and transferred to China. Can the Minister give his assurances that he will do all in his power to prevent this from happening?

Although Ministers may assure us that they will do all in their power, I remain worried that that is not enough to stop sensitive UK Government communications being exposed. It goes beyond the police, as Vodafone has contracts with the Ministry of Justice and the national health service, too. The recent report by the Intelligence and Security Committee of Parliament found that the UK is of “significant interest” to China

“when it comes to espionage and interference”,

and notes that China uses

“all possible legitimate routes to acquire UK technology, Intellectual Property and data”,

but that such overt

“acquisition routes have been welcomed by HMG for economic reasons”.

Now would be a good time for the Government to acquit themselves of that allegation, and to put British consumers and our national security first.

In the past, the Prime Minister met the Intelligence and Security Committee yearly. I hope the Minister will give the House his assurance that the Prime Minister will reinstate those meetings. Now, faced with this significant merger and a litany of other national security threats, would be a good time to do so.

Unite the union has commissioned analysis from digital security expert Dr Alexi Drew, an academic and the director of tech security at consultancy Penumbra Analysis. Dr Drew found that the potential merger created substantial security risks, noting:

“Domestic laws and internal company policies will do little to hinder the exercise of nation-state intelligence gathering apparatus from leveraging any means of access to data that company mergers and acquisitions might enable. If a merger creates the technical or human means to collect valuable data, then the security services of any nation-state, Chinese or otherwise, are likely to make use of it.”

The Government have said that they will assess this risky merger through their investment security unit, so what stage has the ISU assessment reached, and will the acquisition be called in for a further national security assessment? Knowing what we know about the proposals, they seem wrong on so many levels. They are bad news for British customers, will result in significant job losses, and plainly pose a national security threat to the UK. Perhaps things would be very different if the Government actually had an industrial strategy for the UK and were not asleep at the wheel while our national infrastructure got sold off to hostile actors.

In the light of all this, I will be interested to hear the Minister’s contribution and whether he supports the merger. If he supports it, why? If he does not, what will he do to stop the merger?

[Sir George Howarth (in the Chair)]

I remind Members that they should bob if they wish to be called in the debate.

--- Later in debate ---

[Carol Monaghan (Glasgow North West) (SNP)]

It is an honour to serve under your chairmanship, Sir George. I thank the hon. Member for Stockport (Navendu Mishra) for securing this important debate. As the hon. Member for Strangford (Jim Shannon) and a couple of other Members did, I would like to thank Unite the union for the incredibly helpful briefings that it produced for this debate. I also welcome the shadow Minister, the hon. Member for Rhondda (Sir Chris Bryant), to his post.

We have been here before. It is only three years since we engaged in a whole pile of debates about Huawei and the threats posed to national security by the involvement of the Chinese state actor with our 5G network. Despite repeated warnings from allies and security experts, the Tories went ahead and awarded Huawei a huge contract to deliver the UK’s 5G network. Only after months of debates, questions and condemnation did they do a final U-turn to revoke the contract, but not before Huawei had begun its work. That meant that not only was a security risk introduced, but the removal of Huawei from the 5G system cost somewhere between £2 and £3.5 billion. The UK Government’s intransigence in the face of those warnings cost taxpayers a huge amount of money.

We should have learned the lesson. However, it now appears that we are getting ready to hand over control of key infrastructure to the CK Group—the parent company of Three. Following the merger, as the hon. Member for Stockport pointed out, the CK Group will become a person of significant control over a business that will serve 40% of the UK’s population. Unite the union has uncovered extensive collaboration between the CK Group, the Li family that controls it and the Chinese state. A number of CK Group executives sit on Chinese Government committees, with access to the inner circle of the Chinese political elite. That has to raise serious questions about privacy and security for UK consumers, which the CK Group has done nothing to address.

Under the Chinese Government’s state security laws, it would be possible for the personal data of all users of the new merged company to end up in the hands of the Chinese Government. That is bad enough, but Vodafone holds UK Government contracts for the NHS 111 helpline, the Ministry of Justice and the Ministry of Defence.

[Navendu Mishra]

And police forces.

[Carol Monaghan]

And police forces; I thank the hon. Member. Added to that, strategic national assets in the form of Vodafone subsea telecommunications cables between the UK and US would pass to the CK Group. It is quite simply madness.

Security is one thing, but there are other concerns, as a number of Members have pointed out. What would the merger, and any further monopoly of the telecoms market, mean for consumer costs, consumer choice and job security in the UK? The merger would result in nearly half of all UK consumers falling into the company’s market share. As the EU has previously warned when blocking similar mergers, that could harm consumers and give free range for price hikes.

[Navendu Mishra]

The hon. Member is making an excellent speech. Does she agree that the root cause of the problem—the core of the issue—is that the Government do not have an industrial strategy? The merger seems to be bad news for customers, bad news for national security and bad news for people who work for telecoms businesses. The bottom line is that if we had a good, forward-thinking industrial strategy that looked at growing good, well-paid jobs in this country and treating customers well, perhaps we would not be in this place.

[Carol Monaghan]

Of course, we have to look at who the merger is good for. It is good for the shareholders, good for the corporation and good for those who seek to profit off the back of it, but it is not good for the ordinary consumer or, as the hon. Member says, national security.

Given the potential for price hikes, the merger should be thrown out straight away, especially given the cost of living crisis, as the hon. Member for Liverpool, Riverside (Kim Johnson) pointed out. We should not even be here having this debate. The hon. Member for Birkenhead (Mick Whitley) gave an indication of the potential magnitude of such a price hike; I think he mentioned a figure of up to £300 per year. That is astronomical for people who are struggling to make ends meet from week to week. This merger has been portrayed as something that will increase investment, and lead to a better consumer experience and lower prices, but we know what normally happens during a merger: investment falls, profits increase and the customer suffers. I cannot see this being any different.

The difficulty is in who is profiting. We have to look at the Government Benches. Two Tory MPs are on CK’s payroll; that is in the Register of Members’ Financial Interests, so it has been declared. The UK Government must do full diligence, and protect customers from Chinese state surveillance, not override these security concerns.

We need assurances from the Minister that this merger does not compromise national security in any way, shape or form. The two profitable companies concerned, which hold the data of 27 million UK consumers, have critical Government contracts. Will the Government take a “consumer first” and “national security first” approach to any regulatory checks? What steps will the Minister take to ensure that large job losses do not result from any merger? This cannot be allowed to become a repeat of the Huawei scandal, in which ignorance and intransigence not only put consumers at risk but cost billions and led to an eventual U-turn. Security of the telecoms network and of users’ data must come first.

--- Later in debate ---

[Sir Chris Bryant (Rhondda) (Lab)]

Thank you, Sir George. I see we have three Knights Bachelor here today. I do not know what the collective noun is for Knights Bachelor; the obvious answer would be a round table. I warmly congratulate my hon. Friend the Member for Stockport (Navendu Mishra) on introducing this debate on an important issue that will affect not justó 27 million consumers, but the whole country. There is an important debate to be had. I was glad he paid tribute to Unite the union. It is not my trade union, but it has done a great deal of work in this field.

[Navendu Mishra]

You can join!

[Sir Chris Bryant]

No, I am in the GMB, if we are doing announcements. It was also good to hear from my hon. Friends the Members for Liverpool, Riverside (Kim Johnson), and for Birkenhead (Mick Whitley). The latter made an interesting point about Teddy Roosevelt, who largely got elected on the back of resurrecting the old Sherman Anti-Trust Act, to break up the powerful railroad conglomerates in the United States of America. I have always thought that anti-trust legislation could be used to protect consumers; it is vital part of our artillery in Government.

It is always good to hear from the hon. Member for Strangford (Jim Shannon). It amazes me what he knows about; he knows about everything. He is a one-man Opposition, entirely on his own. He made a really important point about rural access to telephony. My constituency in the Rhondda is semi-rural. It feels quite congested, with lots of people living closely on top of each other, largely in terraced housing in the valleys, but everybody lives within a mile of a farm or a field, normally with sheep or cows in it. Some of our mobile telephone connection rates are shocking. Ofcom’s declared figures for all mobile operators show 100% connection. It certainly does not feel like that when I am walking up or down Hannah Street; it is impossible to ring anybody. I am painfully aware of the issues he raised. Today, mobile phone connection can be the difference between life and death. For many poorer families, it is their only means of telecommunication. It is how they apply for a job or register for a bank account. It is how most people run so many parts of their lives. That makes this an important debate.

In essence, there are two, slightly separate questions. The first is: what is good for consumers, the industry and the market? That is a matter primarily for the Competition and Markets Authority, although I shall mention a few things that I hope it will bear in mind when it comes to make its decision. Then there is the separate matter of the security of the UK’s mobile infrastructure from potentially hostile actors. That is a matter for the UK Government through the investment security unit in the Cabinet Office.

I turn to the competition issues first. As others have said, it will always be a matter of concern when two operators merge, taking the number from four to three, and especially so when that creates an operator with 27 million customers; it would be the largest in the field. That intrinsically implies that there will be less competition in the market, and that consumers might face higher charges. Indeed, Which? has made the obvious point:

“Reducing the number of network providers from four to three risks reducing the choices available to consumers, raising prices and lowering the quality of services available.”

To make a point in line with that made by my hon. Friend the Member for Liverpool, Riverside, prices really do matter to every family in our constituencies these days. I note that this year, tariff rates rose in EE’s case by 14.4%, in O2’s by 17.3%, in Vodafone and Three’s by 14.4%, and in BT Mobile’s by 14.4%. That is an awful lot of instances of 14.4%. That does not feel like a very competitive market to me.

Prices for lower-use mobile customers are even worse and much more worrying. Ofcom found a 13% year-on-year real-terms increase in the price of pay-monthly, SIM-only mobile services in 2022. The Labour party and I worry that those increases have contributed to inflation and the cost of living crisis. Yet a smartphone is no longer a luxury; many children do their homework on smartphones, and people fill in job applications on them, or run their companies from them. Both Three and Vodafone have increased prices above inflation recently, which might be an indication of their plans for the future. However, the price rises happened while the companies remain separate. I therefore urge the CMA to carefully consider the likely effect on both companies’ 27 million existing customers.

Vodafone and Three argue completely the opposite of what has been said in this debate, and I will deal with that. They claim that since the other two mobile network operators are much larger, the merger might, counterintuitively, help competition by introducing a genuine third mobile network operator of similar size. They also argue that the concern about competition in the mobile phone market is exaggerated, as the separate mobile virtual network operators market, made up of end providers such as Tesco Mobile, which do not own infrastructure but buy access from the mobile network operators, is very competitive, and has low barriers to entry. Again, Vodafone and Three claim that having a third player in addition to EE and O2, which can offer mobile virtual network operator carriage, is good for competition. They also argue that they need to merge in order to invest sufficiently in 5G, and have the stated aim of making £11 billion in investment over a decade.

[Navendu Mishra]

The information my hon. Friend is sharing is important. On the point that Vodafone and Three make about the merger creating a new outlet for virtual carriers—I think they are called MVNOs—Vodafone already supplies a number of MVNOs, including Asda Mobile, VOXI, which I think is its own brand, Lebara and several others. That does not make any sense at all. Surely consolidating the number of suppliers in the market will result in even higher price rises than the 14.4% he quoted.

[Sir Chris Bryant]

I am not sure whether my hon. Friend has been reading my notes, but that was one of the points I was going to make. Those are issues that the CMA will have to look at very closely with an eye to making sure that consumers are protected.

As has already been pointed out, the idea of an £11 billion investment in 5G would be great if it were a bankable commitment, because I want to see the roll-out of high-quality 5G services across the whole country. As I have already said, that is essential if we are to have levelling up across the country, including in places such as the Rhondda.

Several hon. Members, including the hon. Member for Glasgow North West (Carol Monaghan), pointed out that mergers in other markets have not always led to increased investment; if anything, there has been a tendency in the other direction. I hope that the CMA will look at that. It is worth bearing in mind that the EU’s competition directorate blocked CK Hutchison’s plan to acquire O2 from Telefónica in 2016. The CMA may well want to look at the reasoning behind that decision, as some of the issues may still pertain today.

In any case, competition is not just about having three players competing for business. In practice, many consumers have little or no choice of operator because of local coverage issues. If the main player has only two other companies looking over its shoulder, it may too readily come to pricing decisions that extract maximum income for the company rather than provide enhanced value for the consumer. Again, I hope that the CMA will consider all those matters carefully.

There is one other market-related issue that I hope the CMA will consider: the trained workforce. Vodafone states that the merger is expected to result in

“£700 million of annual cost and capex synergies by the fifth…year post-completion”.

I want to know what that means for jobs. The market has regularly complained about shortages in its workforce. It is difficult to see how the merged company could make those significant savings without significant job losses, but until now it has been rather coy about that. Understandably, staff at the two companies and their union, Unite, are concerned about job losses, and we stand four-square behind those concerns. It would be an own goal for the UK telecoms industry to lose significant numbers of workers from its skilled workforce at this time. Far from helping to develop infrastructure in the UK, that could hinder it.

Let me turn to security issues. The merger will require the approval of the investment security unit, which was moved from the Department for Business, Energy and Industrial Strategy to the Cabinet Office. In effect, that means that, in relation to security issues, approval will be a decision for the Prime Minister. I do not want to exaggerate the security issues, but it is worth bearing in mind that the new company would have to handle extremely sensitive material regarding 27 million customers, as well as contracts for the NHS, the Ministry of Justice and the Ministry of Defence, as has already been said.

Those contracts are currently with Vodafone, not with Three. In the case of the Ministry of Defence, for instance, Vodafone was recently awarded a contract to provide video conferencing and recording services to UK military courts in cases relating to sexual offences. That is an important matter that we should consider carefully. Does it make sense to give such a role to a company, CK Hutchison Holdings—the owner of Three—that is a Hong Kong-based and Cayman Islands-registered conglomerate that was formed only in 2015?

My questions for the Minister are as follows. What assessment have the Government made of the relationship between CK Hutchison and the Chinese state? If the merger were to go ahead, how would the Government seek to guarantee the security of national and personal data? Would they, for instance, consider carving out Government contracts from the deal? Under the provisions of the Telecommunications (Security) Act 2021 and the Government’s designated vendor direction, all telecoms operators are meant to strip Huawei from 5G by the end of 2027. What progress has been made on that, and what in particular has been done at Three and Vodafone? What impact do the Government feel that the Chinese security law in relation to Hong Kong has on Three and CK Hutchison Holdings?

On the security issues, can the Minister tell us what stage the decision is at? Will any Government decision, and the reasoning behind it, be published? Will Parliament be engaged in the process in any way? The Minister will know that the Intelligence and Security Committee has expressed its concerns about the process. The Committee said:

“The fact that the Government does not want there to be any meaningful scrutiny of sensitive investment deals…is of serious concern.”

It went on:

“Effective Parliamentary oversight is not some kind of ‘optional extra’ – it is a vital safeguard in any functioning Parliamentary democracy”.

That is particularly important for us to consider given that the Chinese state has sanctioned several Members of Parliament, including, incidentally, the Security Minister.

Given the recent stories about the Chinese state’s attempts to infiltrate Westminster and serious concerns regarding Chinese involvement in other parts of our national infrastructure, how will the Government ensure that the merger, if it goes ahead, does not undermine national and personal security? How will the Government ensure that all ministerial meetings with CK Hutchison Holdings and its subsidiaries are published in full and in good time, in case there is any inappropriate lobbying?

I want to say one final thing, because we are partly talking about China. Next week will see the 1,000th day of the incarceration of Jimmy Lai, who is a British national. The House will not be sitting, but I think all Members would want to put on the record that we believe he has been incorrectly and inappropriately held in custody. We would like to see him free.

--- Later in debate ---

[Navendu Mishra]

This merger will impact all 650 constituencies that are represented in the House of Commons, so it is right that we discuss it. I hope that the Government will keep Members informed of any developments. I note that my good friend the shadow Minister is a member of the GMB union, and I know that he is a scholar of parliamentary history and procedure, but I invite him to join Unite—it is possible to be a member of two trade unions.

I am grateful to the Minister for his contribution, but he did not say much about prices for British customers. We are in the middle of a cost of living crisis and people are facing a hard time—I think the figure from Ofcom is that 2.2 million households are already in a very difficult position—so I hope the Government will pay attention to the cost of the merger for consumers.

I also did not hear much from the Minister about job losses—well, actually we did, but 1,600 jobs in the UK and 11,000 across the world could go because of this merger. I and other Members will be most concerned by job losses in the UK. This goes back to the points I made about the country’s lack of an industrial strategy and weak governance.

I encourage the Minister and his team to meet Unite to discuss the merger, because Unite is the trade union for workers in this sector and the Government should have engagement with it. I appreciate his comments about the CMA and about the workings of the investment security unit, but meeting the legitimate trade union for the sector should be encouraged, so I encourage him to meet Unite.

I am pleased that there were contributions to the debate from Conservative, Democratic Unionist party, SNP and Labour MPs. I am not quite sure what “Marxist” analysis the Minister was expecting, but I am sorry to disappoint him.

I will end on that note. I hope that Members on both sides of the House will continue to press the Government on this merger.

Question put and agreed to.

Resolved,

That this House has considered the proposed merger of Three UK and Vodafone.