‘Why Labour must oppose the Three-Vodafone merger’

A merger between Vodafone UK and Three UK was announced in June. If the deal goes ahead, Vodafone will own 51% of the combined entity, with CK Group, owner of Three, owning the remaining 49%. Both companies will appoint three out of six board members, with CK Group selecting the crucial chief financial officer role. The new company would be the largest operator in the UK telecoms market, with a 35% market share and 28 million UK customers. 

The companies claim that a merger will speed up investment in 5G and lead to a better deal for consumers. The government seems sold. Sir John Whittingdale, Rishi Sunak’s representative in a recent Westminster Hall debate on the merger, repeatedly emphasised the government’s reliance on private sector investment to meet its connectivity and productivity targets.

The reality of the merger – which was considered by the Commons business and trade committee in an evidence session earlier today – is very different. It raises profound national security concerns and is set to lead to price increases, job losses and a reduction in investment.

Labour’s Nav Mishra pushed for greater parliamentary scrutiny of the deal with a debate in parliament last month, during which Sir Chris Bryant raised some of these concerns on behalf of the shadow front bench. However, with the Conservative Party hoping the deal can be ushered through without anybody noticing, it’s time for Labour to take a stronger lead on this vital issue.

The merger raises profound national security concerns. 

If the merger goes ahead, CK Group would be jointly responsible for the privacy and security of 28 million customers, as well as highly sensitive government contracts with the Ministry of Justice, the Ministry of Defence, the NHS 111 helpline and numerous UK police forces. CK Group’s involvement could leave such data dangerously exposed to the Chinese state.

Li Ka-shing, founder and senior advisor of CK, has been appointed to multiple roles by the Chinese government and has a long-standing relationship with the current Chinese President Xi Jinping. Victor Li, CK Group chair, is also well-connected with Chinese state bodies. He is a committee member of the 14th National Committee of the Chinese People’s Political Consultative Conference, placing him within the inner circles of the regime’s political elites. On top of this, a further ten CK Group executives have current or recent affiliations to the Chinese state.

Both Li Ka-shing and Victor Li also strongly backed pro-Beijing hardliner John Lee as Chief Executive of Hong Kong and vocally supported the introduction of the National Security Law – which, among other things, gives police in Hong Kong the power to snoop on telecoms. According to expert research commissioned by Unite the Union, the National Security Law has effectively destroyed Hong Kong’s legal autonomy within the Chinese state, with Hong Kong-based companies now subject to expansive intelligence and security laws.

In principle, the UK’s Data Protection Act (2018) would require an international transfer agreement between Three and its parent company CK Hutchison, before any cross-border data transfer can take place. However, given allegations that TikTok broke the law by transferring UK user data to China, it requires a leap of faith to believe that CK Group will be able to withstand future legal or economic coercion from the Chinese government – that is, if the company’s leadership even wanted to.

Indeed, analysis from digital security expert Dr Alexi Drew has found the potential merger creates substantial security risks:  “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.”

Worse still, the rules around the approval process give no chance for meaningful parliamentary scrutiny. Security concerns will be decided by the investment security unit (ISU), which sits inside the Cabinet Office. The government handed oversight of the ISU to the business and trade select committee earlier this year, but the committee is only allowed to scrutinised cases retrospectively. In effect, its hands are tied.

A recent report into Chinese investment by the intelligence and security committee made damning criticisms of this process, stating: “The fact that the government does not want there to be any meaningful scrutiny of sensitive investment deals… is of serious concern. Effective parliamentary oversight is not some kind of ‘optional extra’ – it is a vital safeguard in any functioning parliamentary democracy.”

The merger is a bad deal for consumers and workers

According to Ofcom research, more than 2.2 million UK households are currently struggling with the costs of mobile services. Both Three and Vodafone made inflation-busting price hikes of up to 14% on monthly plans earlier this year. This comes after eye-watering hikes of up to 250% for pay-as-you-go deals Three had announced in 2022.

Research from the former chief competition economist at the European Commission found that prices after the merger could increase even further – by as much as 50%, the equivalent of £300 more per year for UK consumers. 

There is also no evidence that the merger will lead to greater investment. A major economic study of similar telecoms mergers in 33 countries found that prices for consumers rose, but there was no overall increase in investment. 

We even have a nearly exact precedent. In the wake of a recent telecoms merger in Australia involving both Vodafone and Three – which claimed, as they are doing in the UK, that the deal was necessary to boost investment – investment levels across the sector fell by 45%. Meanwhile, dividend pay-outs rose by 2,700%.

In addition to boosting profits and driving up prices for consumers, a merger would also mean big job cuts. Up to 1,600 jobs could be lost if the merger goes through, on top of the brutal 11,000 global job cuts Vodafone recently announced.

Labour needs to take a stand against this merger

The evidence on this merger is clear. Market consolidation will raise prices, cut jobs, and comes with no guarantee of increased investment in the sector. On top of these concerns, the merger will expose millions of people’s data, and highly sensitive government contracts, to a Chinese state-linked company. 

The Conservatives and Labour alike need to protect consumers and the UK’s national security by opposing this deal.