Vodafone turns back on Phones 4U but pledges future to rival


UK retailer Phones 4U is staring down the barrel today after mobile operator Vodafone announced it would stop selling its products with the high street chain next year. Dixons Carphone, however, had its best day so far since the merger between the two high street giants Dixons and Carphone Warehouse was finalized last month, as Vodafone renewed its contract with them.

Phones 4U, owned by private equity group BC Partners, is now left with EE as its only full mobile network operator partner, in addition to its own mobile service called Life Mobile and the ‘virtual‘ or ‘MVNO‘ network operator Virgin Mobile (‘virtual‘ in the sense that it does not own its own infrastructure). The news of Vodafone‘s withdrawal saw the value of Phones 4U‘s debt drop by about 75 per cent, another damaging blow after the recent news that O2 would also be terminating its contract with the retailer. EE has also announced it will be reviewing its relationship with Phones 4U as the operator reviews its operations.

A Phones 4U spokesperson said the retailer was “both surprised and disappointed” with Vodafone‘s decision to terminate their contract, but that it was in talks with other operators. Vodafone made up about 25 per cent of contracts made in Phones 4U stores in the last year, generating a turnover of about £212 million for the retailer (£18.5m in EBITDA). But Phones 4U believes that “it may be possible to replace the volume of connections it procured for Vodafone with connections for the existing networks offered by Phones 4U, other network operators, third party MVNOs and its own MVNO”.

In start contrast, Vodafone announced it would strengthen its ties with Dixons Carphone, and shares in the new partnership rose almost 12 per cent to 368.4p. The company‘s market value rose to above £4.2 billion, which in all probability will make it eligible for automatic entry into the FTSE 100 when it comes up for review. A Vodafone spokesperson said the company was “enhancing its distribution partnership with Dixons Carphone from early next year and will not be extending its existing contract with Phones 4U, which expires in February 2015”.

Phones 4U has already been damaged by the merger of Dixons Carphone, which ended an agreement that allowed Phones 4U to sell at a concession price through Dixons, Currys and PC World stores. Nevertheless, chief executive of Phones 4U David Kassler seemed resilient: “We have high levels of market share, especially in the youth segment”. He believed that Phones 4U‘s own brand ‘Life Mobile‘ could yield some much-needed results, a service now “fully road-tested and enjoying a great first year with customer growth ahead of our expectations”.

Like many other mobile operators, Vodafone are reviewing their methods of distribution, reflecting a strategic shift among operators such as O2 and Three over how they deal with third party retailers. Vodafone has committed to building a further 150 of its own stores as well as increasing its branded outlets, which will have repercussions for retailers such as Phones 4U who compete with their own chains of shops.