Three and Vodafone: Potential Merger

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—

And the police.

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.

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?

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.

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 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?

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.

The hon. Member and I are neighbours, and I congratulate him on talking about the rural character of his constituency and how the merger might affect his constituents as customers. I also suggest that it would affect his and all our constituents as citizens because, should the merger take place, it would make users of this phone service subject to China’s national intelligence law, article 7 of which states:

“Any organization or citizen shall support, assist and cooperate with the state intelligence work”.

That will be the obligation on CK Hutchison and its employees. Does he agree?

I thank the hon. Gentleman for his kind intervention. The right hon. Member for Birmingham, Hodge Hill made a lot of those points, along with my right hon. Friend the Member for New Forest East (Sir Julian Lewis), and I agreed with them earlier in my speech. This area needs much greater scrutiny. I remember not long after first coming to this House a few years ago, we had considerable concern about the behaviour of companies that was taking place, or could take place, that would put our national security at risk. That is why I support the comments made earlier by both right hon. Gentlemen.

On that point, I recall that in 2021, while the National Security and Investment Bill was going through the House, the Government repeatedly said from the Dispatch Box that in any conflict between economic interest and national security their policy was that national security would come first. That was the whole point of bringing in the legislation. Now it appears that there is even a question mark on whether the structures set up in the legislation will examine this proposed questionable deal, let alone allow it to be effectively scrutinised by Parliament once they have done that examination.

I thank my right hon. Friend for his intervention. He makes a very valid point. I recall the debates we had in the House several years ago and I think they were very meaningful. I hope that my right hon. Friend the Minister will respond to some of the genuine concerns that a number of us in this House have.

In its first line, the Vodafone and Three brief states that the current UK telecoms market—their own industry—is dysfunctional, and that consolidation is needed to remedy that. I regret to say to the House that, having gone through that and some of the excellent briefings received from other organisations, I am not convinced that the merger is the right thing to do. A number of points have been made on national security, competition and the consumer that indicate to me that it is not necessarily in the interests of the country or the consumer. The brief confirms that, talking about billions of pounds—or euros, on the website—which appear to be the only thing they are interested in. It is of huge concern to me that we are going from four operators to three, given the situation we face. I hope my right hon. Friend the Minister will consider what action to take so that the regulator not only has proper teeth to sort out the issues I have mentioned but that in any future decisions genuine consideration is given to whether a potential merger is in the interests of the country and our constituents. I am afraid that at the moment I am not convinced that it is the right thing to do.

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 call the SNP spokesman.