Government strikes Vodafone agreement after UAE stake national security fears

The Government has reached an agreement with Vodafone to address national security concerns related to a United Arab Emirates-backed telecoms group’s stake in the company.

A number of “proportionate measures” will now be put into place at the London-listed telecoms firm to address concerns and allow it to put a director from the investors on its board.

On Wednesday, Deputy Prime Minister Oliver Dowden used new powers to declare there were national security risks related to Emirates Telecommunications Group, which does business as Etisalat by e&, holding an almost 15% stake in Vodafone.

An order cautioned that the relationship e& has with the British firm would “enable it materially to influence the policy of Vodafone” and ordered a “national security committee” to be set up by the business to oversee and monitor any sensitive work.

The Cabinet Office confirmed on Friday it has now approved a new “strategic relationship agreement between Vodafone and e&”.

“Using the National Security & Investment Act it has put in place proportionate measures to address any potential national security concern”, it said on Friday.

“Where investment might impact the UK’s national security – for example through the acquisition of certain technologies or infrastructure – we will work with investment partners to minimise any risk.

“As part of our critical national infrastructure, telecoms is one such sector. Vodafone is also a particularly important company for the UK Government given its critical functions, including as a key partner in HMG’s cyber security strategy.”

A Vodafone spokesman said: “We are pleased to have received clearance in our home market for our strategic relationship agreement with e& and for e& to take a seat on our board.”

Abu Dhabi-listed e& has built up a stake of 14.6% in Vodafone, marking a deepening of a strategic tie-up that began in May 2022 when e& first invested in the FTSE 100 giant.

The British telephone firm announced in May that e& chief executive Hatem Dowidar would join the Vodafone board as a non-executive director.

Earlier on Friday, the UK’s competition watchdog confirmed the proposed merger between Vodafone and fellow mobile network Three is to be formally investigated.

The Competition and Markets Authority (CMA) said it had started the formal investigation to examine whether it could lead to a substantial lessening of competition for mobile consumers by merging the two firms into a single network provider.

The CMA said if it found reason for concern during its initial examination, it could launch a more in-depth investigation into the merger.

The £15 billion merger was first announced last summer and would create the UK’s largest mobile phone network.

It was expected to draw regulator scrutiny, particularly in terms of competition, because it would reduce the major mobile network providers in the UK from four to three.

Trade unions have also criticised the merger over concerns about possible job cuts.

“This deal would bring together two of the major players in the UK telecommunications market, which is critical to millions of everyday customers, businesses and the wider economy,” CMA chief executive Sarah Cardell said.

“The CMA will assess how this tie-up between rival networks could impact competition before deciding next steps.

“We now have 40 working days to complete this formal phase one investigation, before publishing our findings and any next steps.”

In response to the CMA’s announcement, Vodafone UK chief executive Ahmed Essam said: “We have formally submitted our merger notice to the CMA, having worked with them closely through the pre-notification process. We look forward to continuing the constructive conversations now that the formal process has begun.

“We strongly believe that the proposed merger of Vodafone and Three will significantly enhance competition by creating a combined business with more resources to invest in infrastructure to better compete with the two larger converged players.

“Our commitment to invest £11 billion will build capacity to meet the exponential growth in demand for data and accelerate the rollout of advanced 5G across the UK, delivering benefits to consumers and businesses throughout the nation.

Three UK chief executive Robert Finnegan said: “By combining networks, Three UK and Vodafone UK will unlock £11 billion of investment that will help the UK close the 5G gap with leading European countries and realise its ambitions to be a front-runner in digital connectivity.

“Thanks to this transaction, 95% of the population and every school and hospital will be covered by standalone 5G by the end of the decade.

“Joining forces will also yield more immediate benefits. From day one, our customers will enjoy faster, more reliable coverage over more of the country – and without paying a penny extra.

“We are confident that this transaction will deliver significant benefits to our customers, the country and competition, and we look forward to working closely with the CMA as they review our notification.”