News - EE and Vodafone in talks to buy up the best bits of Phones 4U

[Top_gun]

So in fact the exact opposite of what you said If EE and Voda got 90% of their customers from P4U I can guarantee they would not be pulling the contracts.

I've just read the Phones4U finance press release which made things more clearer for me. Happy to be corrected though I was going to do it myself.

Sorry P4U, but the more I read about this the less sorry I feel for you.

I think BC partners had played their part in the demise of Phones4U. They paid themselves £200m from bonds raised on P4U. The negotiations between the networks & P4U was problematic as the debt meant P4U couldn't be more flexible.

[peterb]

I think BC partners had played their part in the demise of Phones4U. They paid themselves £200m from bonds raised on P4U. The negotiations between the networks & P4U was problematic as the debt meant P4U couldn't be more flexible.

Well, not quite, although it is a technicality.

BC partners paid between £600M and £700M to buy P4U. They then sold bonds to other investors to repay the balance outstanding on the purchase. A report on Radio4 this morning said that the prospectus for that bond issue pointed out the risks to potential investors (ie, business relied on contracts from the mobile phone operators) although it offered an apparently very good return.

But while I don't have much sympathy for P4U management or the investors who bought the bonds, I do feel sorry for the workforce who have been left in the lurch. Some have (or will be - taken on by Dixons Group, and if Vodafone and EE may take on a few more.

But long term, I can't see how service re-selling was going to remain viable. The mobile phone market in the UK has pretty much reached saturation point.

What value did P4U add to either the customer or the supplier?

[Pob255]

If there was collusion between EE and Vodaphone to cancel at the same time, thereby forcing p4u out of the market (even if not at once, the news that the two companies that make up "90% of the connections" have cancelled would of crippled their share price making it near impossible to continue.) then there is a major reason for careful investigation.

You can add additional suspicion with both EE and Vodaphone wanting to move into direct retail and the death of p4u opening the opportunity to buy up a ready to go retail operation cheaply rather than having to build up there own operations.

However at the same time the p4u business model, mismanagement in not adapting to the changing market and the investors behind it also need to be looked at.

Although I would like to point out that there are only 4 actual mobile network operators in the UK (all the others are virtual operators) so a business model based on 2 of them isn't that outrageous. (and remember at the start of the year O2 was also still operating with p4u, so that was 3 of the 4)

Also p4u is actually a small company when compared to Vodaphone (2nd largest mobile phone operator in the world) and EE (which is a joint venture for the UK between Orange (8th largest mobile phone operator in the world) and T-Mobile(16th largest mobile phone operator in the world))

[Top_gun]

Well, not quite, although it is a technicality.

I'm sticking to my version PeterB. According to this article BC partners only put up £200m of its own money to buy the business. BC partners then recouped its money plus profit when they paid themselves a dividend from P4U.

Like all private equity companies, BC partners was only interested in making short term profits rather than making Phones4U a more sustainable business.

What value did P4U add to either the customer or the supplier?

To a person who never shopped in Phones4U then the answer is no value at all which I suspect is the main reason why you have the need to ask such a question.

However, someone like me, who appreciates the diversity of shopping channels, P4U offered an invaluable service. First of all, I was able to view a wider range of handsets from P4U compared to Carphone Warehouse. Secondly, P4U offered some great deals including instant cashback at time of purchase. Thirdly, the staff was a pleasure to deal with compared to CPW, Vodafone, Three, EE and O2.

[snedger]

I wish the majority of P4U staff the best of luck in finding new jobs, but to the few who lied repeatedly in the mis-selling of the Galaxy Note 2 in the UK as a 4G version when obviously it wasn't, for the mercenary sake of commission - I hope you find a new career, outside of sales.

[Noxvayl]

Tesla are pretty unique though in that they have a very limited product range, and is not yet a mass market commodity. But if other car manufacturers could see a way of cutting out tied dealerships - they would do it. You can practically build a car on most manufacturers websites - its only a small step to sending that configuration to the factory and your car is built to order. But if Tesla do become a mainstream manufacturer, they may find that resellers (dealerships) might become a necessity - but they don't need dealers for promotion of the product.

Dealerships do bring other things to the customer - finance, delivery, servicing, trade in and so on. Compare that with mobile phones - there is a lot of publicity and information about various phones - you don't really need to go into a shop and buy one. What value does an outfit like P4U bring to either the seller (the mobile phone companies) or the buyer - apart from taking a commission?

In my mind I don't see why car manufacturers can't provide the same benefits to customers themselves... it seems strange to me that a separate business entity is required to take care of delivery, finance, servicing, trade-ins and so on. The communication required is the same whether the on the street stores are owned by manufacturer or someone else, same with the requirements to produce and deliver the cars.

Having said that I am not particularly in favour of one model over the other. I prefer the efficiencies of learning from all parts of the business to help improve practice but that doesn't have to be lost in a non-direct selling environment. It seems that direct selling is becoming so much easier now thanks to the internet that it is becoming a more attractive option to help reduce costs. I'm sure it comes with its own set of troubles, in Tesla's case they need to take care of a growing network of charging stations and stores they are setting up which is more commitment for them than would be required in the dealership model. With Tesla being a unique case I feel they wouldn't be in the position they are in now if they tried to get their cars sold through dealerships; the majority of people I speak to about Tesla cars have negative ideas about them and require a lot of "selling" to get them to view the car in even a similar light to the likes of Jaguar, Mercedes-Benz, Audi, BMW, VW and others. When you are trying to change the status quo it is more difficult to use the same methods as the incumbents, so it seems to be a necessity for Tesla to go it alone.

I've not used Phone4U to be honest, and that is mainly because I do most my shopping online. I find no benefit in having a shop like that, even if you don't shop online, because you can easily walk to other stores to find out what they have to offer. I understand the appeal of comparing things in one shop, and their methods of reducing the costs for customers are creative to say the least, but I don't see the demise of the shops as a negative for customers unless prices continue to rise despite the obvious benefits to network operators. Like others have suggested it would be a good idea to keep a careful watch over what happens with this. What I am sad about is the loss of jobs in an economy with too many people out of a job already; loss of jobs seems to be a trend that is not abating.

[ik9000]

According to this article BC partners, an private equity firm and owner of P4U, was busy asset stripping the company rather than developing P4U to a more sustainable business model.

Winners: BC partners (£225m dividend plus 30% return on their original investment), vultures like Vodafone & EE carving up the P4U business.

Losers: 5,500 P4U employees

The rich get richer and the ordinary person gets poorer.

really? The socialist worker is hardly going to paint a picture of unbiased neutrality... is there a more reliable reference to back up those claims. The profits made by the company were pretty strong, but it relies on having phone contracts to offer. Without those there is nothing they can do. Unless there's been some great conspiracy it is hard to see how the PE firm would have control over the independent phone companies withdrawing support

[scaryjim]

... it is hard to see how the PE firm would have control over the independent phone companies withdrawing support

The PE firm managed P4U, and failed to negotiate a new contract with Voda partly because of the debts they had racked up and needed to service. They didn't directly influence Voda's decision not to renew, but they could have been more flexible on contract terms in order to secure the short term future of the business, and then explored alternative business models that didn't rely on their direct competitors as part of the supply chain. There's two sides to a negotiation, and it certainly doesn't sound like Voda just flat refused to talk about renewing the contract: the two sides simply couldn't agree terms. Sometimes that happens in business..

[mtyson]

EE buys 58 P4U stores.
Vodafone takes over 140.
http://www.bbc.co.uk/news/business-29306949?