Phones 4U owner clashes with mobile groups Vodafone and EE

The abrupt failure at Phones 4U, the British retailer founded by entrepreneur John Caudwell, has sparked a heated blame game between the group's private equity owner and its former mobile operator partners.

Phones 4U went into administration on Sunday night after EE and Vodafone, two of the UK's largest mobile phone operators, decided to withdraw their products from its stores next year.

The move has put at risk the jobs of almost 6,000 people and the closure of 550 stores across the UK, marking the largest retail failure to hit Britain's high streets since the demise of Comet in 2011. 

Vodafone attacked Phones 4U's owners, BC Partners, for allowing management "little commercial flexibility" to negotiate terms of its partnership "due to their debt repayment obligations". 

Despite the company's troubles, BC Partners, which acquired Phones 4U in 2011 for about £600m, secured a 30 per cent profit on its investment thanks to a payout last year that was funded through raising debt on Phones 4U's balance sheet. 

"Phones4U was offered repeated opportunities to propose competitive distribution terms to enable us to conclude a new agreement, but was unable to do so on terms which were commercially viable for Vodafone in the current UK market conditions," the mobile operator said in a statement.

"We were told by the Phones4U management team that they had little commercial flexibility due to their debt repayment obligations, but that they had a number of alternative strategies in place if we couldn't reach an agreement with them. It is now clear based on the events that have transpired that there were no viable alternative plans in place."

The statement was made in response to criticism of Vodafone's decision to withdraw by BC Partners.

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"Their behaviour appears to have been designed to inflict the maximum damage to their partner of 15 years, giving Phones 4U no time to develop commercial alternatives."

Analysts expect there to be little interest in acquiring the business as a whole, which would lead to the gradual break-up of its store portfolio by administrator PwC.

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The demise of Phones 4U had an immediate beneficial effect on its long-term rival Dixons Carphone, whose shares rose nearly 3 per cent on Monday.

The recently merged electronics retailer is expected to say later on Monday that it has up to 1,500 vacancies across its store portfolio that could mitigate some of the job losses, although the situation is complicated by an agreement that prevents the group directly soliciting employees from its rival.

< > With an 11 per cent share of the UK mobile phone market, analysts were bullish about the prospect of Phones 4U customers migrating to Dixons Carphone.

In a note to clients, Alistair Davies, Investec analyst, estimated that Dixons Carphone could grab up to £225m in annual revenues from its rival, which he calculated "could represent a £45m opportunity for forecast" full-year pre-tax profits.

Administration means that Phones 4U's 550 stores will be closed "pending a decision by the administrators on whether the business can be reopened for trading", the retailer said.

The final blow was dealt by EE, which on Friday announced it would not renew its contract with Phones 4U next year, a decision that came less than two weeks after Vodafone's similar move. 

The withdrawals reflect a strategic shift among mobile network operators over how they pay commission to third-party retailers that compete with their own chains of shops.

Without these two contracts, the company "is suddenly in a position where it will be without a mobile network partner when the current contracts expire", Phones 4U said. "The unexpected decisions by both Vodafone and EE have come as a complete shock to the business."

David Kassler, chief executive of Phones 4U, said: "Today is a very sad day for our customers and staff. If the mobile network operators decline to supply us, we do not have a business."

Last year, Phones 4U generated more than £1bn in sales and had earnings before interest, tax, depreciation and amortisation of £105m. It has "significant cash in the bank", it said.

Additional reporting by Claer Barrett

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