In response to increased scrutiny over foreign investment in British infrastructure, the government has imposed restrictions on Vodafone’s relationship with its largest shareholder e&. This is the United Arab Emirates based telecoms company.
In a surprising announcement, the Government said that Vodafone’s role in cybersecurity as well as its supplier of services to the central government could raise national security concerns.
The government stated that a strategic partnership between the two companies, announced in May last year, could allow Emirati businesses to “materially” influence Vodafone’s policy. The government said that the intervention “was necessary and proportionate” in order to “mitigate any risk to national safety”. The UAE government owns 60 percent of the company, also known as Etilsat.
The relationship between British and Emirati business has been brought into the spotlight by a bid of £600 million for the Telegraph Group made by a company supported by the Abu Dhabi ruling families, which has raised concerns about threats to press liberty. IMI, which has been partially funded by an Emirati prince, has promised to maintain free reporting while it attempts to take control over the publisher.
Lucy Frazer has ordered an additional regulatory review of RedBird IMI’s bid to acquire the Telegraph group on grounds of public interest.
Vodafone will also face a second national-security review in relation to its proposed merger with Three a competitor owned by CK Hutchinson (the Hong Kong-based conglomerate).
Karen Egan is the head of media consultancy Enders Analysis’ telecoms department. She said that the order from the government showed “real sensitivity about the services Vodafone provides, and that the influence of autocratic countries is viewed cautiously.” Both the Telegraph takeover and the proposed Vodafone-Three merger will be read across.
Oliver Dowden is the cabinet secretary and the deputy prime minister. He has ordered that the companies establish a national security committee made entirely up of Vodafone staff to supervise the sensitive work Vodafone and its group do and the impact it may have on the UK’s security. The companies must also meet certain requirements regarding the composition of the board, and inform the government about changes in their relationship.
Vodafone’s website claims that it provides secure and encrypted communication to government departments, including the Ministry of Justice.
In 2022, the UAE’s state-owned Telecoms Group began to build its Vodafone stake. It is now the largest shareholder with a stake of about £3.3 billion or nearly 15%. It has committed not to buy more than 24,99% of the company. Hatem Dowidar (54), the former CEO of Vodafone Egypt and the Group Chief Executive of e&, will be joining the board of Vodafone as a non executive director under the terms of the strategic tie-up announced in May of last year. The deal must be approved by other jurisdictions.
In January 2021 the National Security and Investment Act came into effect, giving ministers power to interfere in transactions that could pose a risk to national security, to impose conditions for their approval or to block them completely to protect British interest.
The law was enacted partly due to concerns that Chinese investors would buy up British companies or other assets. The government will confirm that it is investigating a deal once it has issued a final order, and decided to take action. Five of the 866 deals that were referred to under this act in 2023 were blocked, and ten required remedies to reduce risks.
Vodafone’s spokesperson said: “We were pleased to receive clearance on our home market to our strategic relationship with e&, and that e& would be taking a seat in our board.”
Cabinet Office spokesperson said: “The National Security and Investment Regime allows the UK to continue championing Open Investment, while protecting national security.”
Vodafone’s share price closed at 68 1/4p down by 1/4p or 1.1 percent.