The stake in Vodafone held by a United Arab Emirates-backed telecoms group poses a national security risk to the UK, the government said.
The Cabinet Office issued a notice late on Wednesday warning that the 14.6% stake held in Vodafone by Emirates Telecoms, which is also known as e&, amounted to a security concern given Vodafone’s strategic role in the UK’s telecommunications services.
It has now ordered a “national security committee” to be set up at Vodafone, which will oversee and monitor any sensitive work it carries out which could have an impact on national security.
The action is “necessary and proportionate” to “mitigate the risk to national security”, the government said.
The warning comes after e&, which is 60% owned by the UAE government, increased its stake in Vodafone since an initial investment of £3bn in 2022. In April, the company upped its stake to 14.6%, before entering a strategic partnership agreement under which the e& chief executive, Hatem Dowidar, joined the Vodafone board.
That move triggered the government to look into the deal under the National Security and Investment Act 2021, owing to Vodafone’s importance as strategic supplier of the UK government and being involved in the country’s cybersecurity infrastructure. However, the government had not previously made any public announcements saying it was looking into the partnership.
The Cabinet Office said the partnership would enable e& to “materially influence policy at Vodafone”.
Oliver Dowden, secretary of state at the Cabinet Office, has now made several orders, including requirements that the UK government is notified if any elements of the relationship changes. UK government requirements must also be met regarding Vodafone’s board composition and functions.
Under the terms of the strategic partnership, e& can increase its stake to just under 25%, while also having the opportunity to add another executive to the board if its ownership tops 20%.
The state-owned firm has previously said it planned to be a “long-term and supportive shareholder in Vodafone and is not seeking to exert control or influence the company’s board or management team”. The company operates in 16 countries across the Middle East, Asia and Africa and has an estimated 164 million customers globally.
A Vodafone spokesperson 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.” The Guardian contacted e& for comment.
The Vodafone agreement is one of several deals in recent years made by UAE-based companies and investment vehicles seeking to invest and grow their stakes in UK companies.
Regulators have been looking into the prospective transfer of control over the Telegraph and Spectator from the Barclay family to the Abu Dhabi-backed investment group RedBird IMI on public interest grounds.
Ofcom and the Competition and Markets Authority (CMA) had been due to report on Friday, but are now likely to be asked to look again at the deal and report in mid-March if, as expected, a second investigation is launched after the culture secretary said she was “minded to” issue a new public interest intervention notice.
Lucy Frazer made the announcement on Wednesday after a last-minute corporate structure change by RedBird raised fresh concerns.
There has been outrage from some politicians – as well as former and current Telegraph journalists – about the deal, which would allow an overseas government to control a significant stake in a UK national newspaper.
Vodafone also faces separate regulatory scrutiny over its proposed £15bn merger deal with a fellow telecoms company, Three.
An investigation was launched by the CMA in October to look into whether the tie-up could affect consumer options and prices. The union Unite has claimed the deal could add £300 a year to some phone bills.
