LONDON--Mobile phone operating giant Vodafone Group PLC Monday
defended its decision to end its contract with cellphone retailer
Phones 4u after the British third-party store chain entered
administration.
Phones 4u said Vodafone's decision last month to end its 15-year
partnership with the retailer in February next year was incorrectly
handled and didn't give it time to find a commercial solution.
Competing mobile phone operator EE--a joint venture between
Deutsche Telekom and Orange SA--also is pulling out of its Phones
4u contract, in September 2015, leaving the chain without a mobile
network partner.
Phones 4u said on Sunday it had been forced to seek creditor
protection after Vodafone and EE, two of the U.K.'s biggest phone
operators, decided to remove their products from the store
chain.
"We are saddened to read that Phones 4u have gone into
administration and the impact that will have on their employees.
However, we strongly reject any suggestion that we behaved
inappropriately," a Vodafone spokesman said.
"Phones 4u 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 U.K. market conditions," the
spokesman added.
Vodafone also said it was misled during the talks.
"We were told by the Phones 4u 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," said the
spokesman.
"So when we terminated our contract earlier this month, we made
it clear that we would honor our existing contract...to give them
sufficient time to finalize one of those alternative strategies. It
is now clear, based on the events that have transpired, that there
were no viable alternative plans in place."
Mobile operators like Vodafone and EE, stung by pinched consumer
pockets in Europe and regulated charges on phone calls, are
increasingly selling direct through their own stores to maximize
profit and cut distribution costs.
"In line with our strategy to focus on growth in our direct
channels...and driven by developments in the marketplace that have
called into question the long term viability of the Phones 4u
business, we can confirm that we have taken the decision not to
extend our contract," said an EE spokesman.
The "unexpected decisions" by both Vodafone and EE came as a
"complete shock" to the business, a Phones 4u spokesman said.
"The company is in a healthy state and both EE and Vodafone had,
until very recently, consistently indicated that they saw Phones 4u
as a long-term strategic partner," the spokesman said.
Phones 4u was under competitive pressure after the merger of
consumer electronics retail giant Dixons Retail with the 1,500
store Carphone Warehouse Group in August.
Phones 4u's administration isn't just a mobile retailer issue
but the most high profile example of a danger both all retailers
and wholesalers face--loss of the middleman, says Glyn Mummery,
partner at restructuring firm FRP Advisory.
"Manufacturers increasingly go more direct to the market in the
ever-shrinking logistics supply chain," said Mr. Mummery.
Phones 4u, owned by private equity group BC Partners, has 550
stand-alone stores, employing 5,596 people. The company said it has
sales of over GBP1 billion ($1.63 billion) and GBP105 million in
earnings before interest, tax, depreciation and amortization in
2013, with "significant cash in the bank."
Still, Phones 4u said it had "no option" but to seek the
appointment of administrators from PwC. Stores will be closed
pending a decision by the administrators on whether the business
can be reopened for trading, it said.
"If the mobile network operators decline to supply us, we do not
have a business," said David Kassler, chief executive of Phones
4u.
BC Partners said Vodafone acted in exactly the opposite way to
what it had "consistently indicated" to the management of Phones 4u
over more than six months. Vodafone's actions appear to have been
designed to inflict the" maximum damage", it said, giving Phones 4u
no time to develop commercial alternatives.
Write to Simon Zekaria at simon.zekaria@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires