This comes with some conditions – and it is still unclear whether the merger will be permitted by the Competition and Markets Authority
The saga of the proposed merger of Vodafone UK and Three UK continues. The UK Cabinet Office announced the proposal passed a national security assessment by the government but imposed some conditions.
A national security investigation is usual for any proposed changes of ownership to any organisation viewed as strategically important to the country, which includes communications infrastructure.
Concerns about security were raised due to Three UK being an indirect but wholly owned subsidiary of the CK Hutchison Holdings, which is listed in Hong Kong. There are concerns in the UK and many other countries about the Chinese government using Chinese companies for espionage and other security risks. This had led to governmental bans on using Chinese vendors’ equipment in communications infrastructure.
In January the UK government expressed concern that the 14.6% stake in Vodafone held by the self-styled global technology company e& could be a potential national security risk to the UK. e& had net profits of AED9 billion (€2.255 billion) in 2020. Its headquarters are in Abu Dhabi. The United Arab Emirates government has a 60% stake in the operator, the other 40% is publicly traded.
Security by committee
The UK government has investigated these potential risks and green light to the merger on the following terms. The combined entity must set up a national security committee to oversee any sensitive work and “topics relating to cyber, physical and personnel security”. The committee will be required to report to the government regularly.
There are also conditions regarding the governance of the combined entity and there must be an independent review of its network migration plans.
However, the merger is not a done deal. The companies are still waiting for a decision about whether their proposed merger can go ahead from the Competition and Markets Authority (CMA). It is expected to announce its decision after concluding its in-depth investigation in September.
The investigation was launched after a preliminary assessment raised concerns the potential impacts of reducing competition in the UK. If allowed, the joint venture will reduce the number of mobile network operators from four to three. There are also possible ramifications for MVNOs as well as end users.
Vodafone and Three argue that combining their businesses is essential to achieve the scale they need to make a return on network investment and assets.