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Vodafone deepens ties with Dubai amid national security concerns over Three deal

Hatem Dowidar - LinkedIn
Hatem Dowidar - LinkedIn

The chief executive of the United Arab Emirates’ state-owned telecoms company is to join Vodafone’s board in a move that will deepen national security concerns about one of Britain’s critical infrastructure providers.

The FTSE 100 company has formed a new strategic partnership with state-controlled e&, also known as Etisalat, which has built up a 14.6pc stake in Vodafone.

As part of the deal, Etisalat chief executive, Hatem Dowidar, will be granted a seat on Vodafone’s board.

If the Abu Dhabi-based firm increases its holding above 20pc, it will be able to nominate a second non-executive director to the British telecoms giant’s board.

Etisalat is 60pc owned by the UAE government. The country has attracted international condemnation for its use of online censorship and alleged attempts to spy on its citizens.

The UK High Court ruled in 2021 that Dubai leader, Sheikh Mohammed bin Rashid al-Maktoum, had hacked into the phones of his ex-wife Princess Haya bint al-Hussein as well as her legal advisers and staff during a row over custody of their two children.

Sheikh Rashid al-Maktoum is the Prime Minister of the UAE as well as ruler of Dubai. He has denied the allegations.

In a separate case, the New York Times claimed in 2019 that a popular Emrati messaging app called ToTok was in fact a spying tool used by the government to track its users. Google and Apple removed the app from their app stores in response to the report.

The UAE declined to comment to the New York Times about the claims.

In 2009, Etisalat was accused of tricking Blackberry users into installing spyware by telling them it was a software update.

The company denied the allegation at the time and said the suspect update was the result of a “technical fault”.

Etisalat also operates internet censorship software in UAE that blocks access to websites that contravene the country’s moral and religious values, including pornography and material that promotes gay rights.

Operating the censorship software is a requirement of UAE’s Telecommunications Regulatory Authority.

However, Washington-based campaign group Freedom House has said: “In practice, authorities commonly block websites that criticise the government or tackle social taboos. Blocking has emerged as a political tool.”

Separately, the treatment of workers by Emirati companies has also come under scrutiny following mass sackings at P&O Ferries, which is owned by Dubai-based DP World. The move sparked widespread outcry in Britain and prompted the government to bring in new laws meant to stop a similar incident happening in future.

Closer ties with Etisalat will add to national security concerns surrounding Vodafone as it tries to push through a £15bn merger with rival Three.

China-sceptic MPs and unions have raised the alarm over the planned tie-up because Three is owned by Hong Kong-based CK Hutchison. Critics of the deal say it would give China a foothold in critical infrastructure and risk jobs.

A merger between Vodafone and Three would create Britain’s biggest mobile operator with 27m customers. Vodafone also holds a number of sensitive government contracts.

The Berkshire-based company is seeking to push the deal through as management struggles with a huge debt pile and troubles in its German business.

The company abruptly ousted chief executive Nick Read in December and last month confirmed Margherita Della Valle as his permanent replacement after a lengthy search process.

Ms Della Valle is exploring options to sell off various business divisions around the world in a bid to simplify the sprawling group.

Etisalat first took a 10pc stake in Vodafone a year ago and has been building its holding ever since. However, bosses have said the position will not increase above 25pc.

Under the terms of the new partnership, Vodafone and Etisalat will explore joint offerings in telecoms services and may adopt joint procurement.

Margherita Della Valle, deputy chief financial officer Vodafone Group Plc, poses in this undated handout photo released to the media on Tuesday, May 15, 2018 - Ed Robinson/Vodafone
Margherita Della Valle, deputy chief financial officer Vodafone Group Plc, poses in this undated handout photo released to the media on Tuesday, May 15, 2018 - Ed Robinson/Vodafone

Ms Della Valle said: “We know e& well and I’m delighted we have strengthened our existing relationship through this strategic partnership.

“This closer alignment allows us to capture opportunities in our respective markets and brings additional telecoms experience to our board.”

In a separate announcement, Vodafone yesterday said three of its directors will step down at this year’s annual general meeting.

Valerie Gooding, Sir Crispin Davis and Dame Clara Furse are all nearing the end of the nine-year limit set under UK governance rules.

Sir Iain Duncan Smith, the former Tory leader, said e&’s involvement added to existing concerns surrounding Vodafone’s merger with Three.

He said: “The authorities need to think very seriously about opening the door to a lack of competition and some companies with track records that are distinctly dodgy.”

A senior industry source said: “I think Vodafone will regret this… I think e& will continue to build their stake.”