Vodafone should be forced to spin off its most sensitive activities in order to quash national security concerns raised by a United Arab Emirates-backed telecoms group swooping on its shares, government officials have told the Guardian.
The deputy prime minister, Oliver Dowden, announced on Wednesday that the deal involving Emirates Telecommunications Group building a 14.6% stake in Vodafone presented a “national security risk” to the UK due to Vodafone’s role “as a strategic supplier of services” to government departments, including those “which are in support of national security”.
Dowden said on Friday the government had reached an agreement on measures to manage security risks, without giving details. The government “has put in place proportionate measures to address any potential national security concerns”, he said, adding that the UK was “rightly a magnet for global investment”.
However, officials and sources familiar with operations at Vodafone said breaking off some operations would still be safest for the UK.
Concern is understood to centre on a division called Vodafone Business Security Enhanced (VBSE). It works on some of the most sensitive tech used by the government and its security agencies, sources told the Guardian, including the Ministry of Defence, Foreign Office, Ministry of Justice and the Home Office.
The work is so sensitive that most of VBSE’s government-linked contracts are not publicly listed and some of its staff are vetted to hold high-level security clearance.
The government has not mandated the spin-off of VBSE. However, sources said a full separation might be the best solution to protect the national security functions that VBSE undertakes.
A large proportion of VBSE’s UK workers are based in Hampshire in what the company describes as a “mini-Fort Knox”.
Many of its staff have backgrounds in the military, intelligence services or other sensitive areas of government. Its head, Steve Knibbs, who worked at GCHQ for several years after serving in the British military, also chairs the national security committee of the of industry body TechUK.
Vodafone’s work ranges from mobile networks for civil servants to the ownership and maintenance of subsea cables and services for the UK’s military court service. The service’s hearings are sometimes highly sensitive, involving risks to national security or military operations, and can be held in private. They can also take place anywhere in the world, requiring secure IT support. Defendants and advocates often appear via video link.
The terms of the deal between Vodafone and Emirates Telecoms, also known as e&, allow the latter to add an additional executive to the board if its ownership rises above 20%. It can increase its ownership to nearly 25%.
The Cabinet Office said in a statement on Wednesday that the tie-up would allow e& to “materially influence policy at Vodafone”.
The statement also laid out requirements for Vodafone to set up “a national security committee to oversee sensitive work that Vodafone and its group perform which has an impact on or is in respect of the national security of the United Kingdom”.
Scrutiny has been rising over a range of UK deals backed by the gulf state. This includes the UAE-backed purchase of the Telegraph and Spectator groups. The deal would allow RedBird IMI, which derives most of its funding from Sheikh Mansour bin Zayed Al Nahyan, the vice-president of the UAE and owner of Manchester City football club, to take a controlling stake in the national newspaper and magazine groups.
RedBird IMI has said it would be a “passive investor” once it took ownership of the titles.
The Cabinet Office declined to comment.
A Vodafone spokesperson said: “Vodafone is not considering any change to Vodafone Business Security Enhanced and is not in discussion to spin off the organisation. VBSE is a 24/7 business unit, which has technical operational separation, delivering end-to-end and managed security services to private and public organisations in the UK.”
