Three and Vodafone: Potential Merger

Navendu Mishra 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.

--- Later in debate ---

[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.

--- Later in debate ---

[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.

[Madam Deputy Speaker (Dame Eleanor Laing)]

I call the SNP spokesman.

--- Later in debate ---

[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.