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

[LSG501]

looks like the p4u staff inside pcworld/curry's are safe, seems that they're going to be offered jobs by pcworld/currys/cpw.

Have to say this is starting to look a little more 'calculated' by the mobile firms...I'm not looking forward to the way phone contracts are heading

[peterb]

I'd be interested to know what the 'best bits' were. Essentially they were service re-sellers, so apart from stock (which might have been supplied on credit) and buildings, which may be leased, there is really only the 'goodwill' left, and that is very hard to value.

[CAT-THE-FIFTH]

Why isn't this being investigated??

So basically EE and Vodafone have made a cartel??

This is no different than the price fixing with things like RAM,and other things where the companies are fined.

[peterb]

Why isn't this being investigated??

So basically EE and Vodafone have made a cartel??

This is no different than the price fixing with things like RAM,and other things where the companies are fined.

Not necessarily - no company is forced to sell its products through a third party, neither is there any obligation to renew a contract when it expires. Ultimately P4U had a poor business model - relying on one main income stream.

If one of the companies breached the terms of the contract, then there might be recourse in law, but if both contracts ended at the same time - again a matter of all eggs in one basket.

[Noxvayl]

I'm passed the point of being annoyed by this... I would of been a few years ago but now, business as usual really.

I feel sorry for the staff that will now be moved on though, yet another change in the market where the population gets the back end of the stick through lower employability. It seems the market is changing pretty quickly and I imagine the slow pace of the economy is encouraging companies to take on more direct forms of selling their wares.

Tesla is essentially starting as a direct sales initiative and the American dealer system is up in arms about it.

[CAT-THE-FIFTH]

Not necessarily - no company is forced to sell its products through a third party, neither is there any obligation to renew a contract when it expires. Ultimately P4U had a poor business model - relying on one main income stream.

If one of the companies breached the terms of the contract, then there might be recourse in law, but if both contracts ended at the same time - again a matter of all eggs in one basket.

Except now they don't need to reduce prices and they can conspire with each other to fix them. This looks all planned by EE and Vodaphone and some of the virtual networks have been screwed over by them in the past too. So CPW is not safe.

Direct sales tend to be more expensive from either companies anyway and with EE I noticed even their retention deals are hardly existent anymore according to many people I have talked to.

EE has massively bumped up prices of their contracts in the last year,and Vodaphone is not much better. They have rebranded it as "4G" but most of the country has no 4G access and yet prices have doubled(or even more),and service has gotten worse. I am with EE and where I live in Kent,it really looks like they have been shutting down towers or not bothering to repair ones which have gone down for weeks.

Essentially it is 3 that is the only company that can keep prices in check and EE and Vodaphone,even though they use some of the EE infrastructure - but since they are part of Hutchison Whampoa,I don't really think they want to play too many games with them!

[Brian224]

Is it worth mentioning that EE and Vodaphone were the last two companies to fail to renew contracts? Perhaps they considered that without the other networks, P4U's business model was dead anyway. It is certainly hard to imagine how the stores could have continued with only one supplier.

[Unique]

I'm angry because of the loss of jobs this is going to cause.

in regards to your comment below, i asked "why rage", but what you said there and what you said below appear to be completely different things. below you say rage about ee and v benefitting, and that's specifically what i questioned what the rage is about, yet you change "rage" to "angry" and mention a loss of jobs. although at this point, i've not seen any job losses confirmed

My rage at the thought of EE and Vodaphone benefitting from this is burning a hole in my chest. This needs to be investigated right now. Plans to purchase a high street brand aren't generated over night. This is a cold and calculated plan. Or maybe I'm just cynical.

so why do you feel rage regarding the above statement? it's 3 huge companies, not david vs goliath

I appreciate the company was stagnant with regards to it's business model and perhaps the company was highly geared but it was profitable. If a business can maintain is profitability then that business can do a lot over a period of time. However, EE and Vodaphone have pulled the rug out from under the feet which if it was purely on the merit of the contracts standing and offered, would have been fine.

but if a business is reliant specifically on one or two suppliers to continue, yet can't maintain a working relationship with those suppliers, surely that's not the problem of the suppliers?

But it seems as though this is a little more staged than should be feasible. It seems like it's very underhanded and as such I hope an investigation is launched into this series of events.

it doesn't sound like anything illegal has taken place, so why should taxpayers money be wasted on investigating it?

If the findings are it was all above board and that P4U was poorly managed and the decision to withdraw contracts was a purely commercial one with no view to picking the P4U carcass, then that's business.

so you have no problems if everything was legal?

However, if it is found otherwise, then there needs to be serious ramifications.

if anything illegal has taken place, the law should be followed. but there is nothing to suggest the law has been broken. it simply sounds like a badly run business losing it's two biggest suppliers who no longer want to trade with them

[Unique]

No laws may have been broken in this but I feel this morally wrong for EE and Vodafone to purchase chunks of Phones4u.

i don't. it's 3 huge businesses, and each have shareholders and employees. plus it sounds like they may take over p4u so only the p4u shareholders and management may lose out

I can but hope that someone else can offer a better deal for the staff, I would not wish for the sale to be blocked from EE and Vodafone if it means people have a job again. But I would imagine that it will leave a sour taste in a lot of mouths.

likewise. it's a huge potential loss of taxes with a huge potential amount of benefits to be paid out. but that blame lays solely with p4u management

[pp05]

Thank you private equity.

[pp05]

Certainly I'd agree that the "increased service" was the case with the P4U local shop - invariably very helpful, even to the point of saying "you could try CPW round the corner for that, just don't say we sent you". I compare that with the behaviour of the local Three and Voda stores, whose attitude to questions were (both) "it's (somewhere) on our website, go look there".

You're one of the lucky ones. Many people did not have a good experience with phones4u.

As far as the stores go, the private equity firm behind them loaded them up with debt, then tell voda/t-mobile we can't offer you better terms due to our debt obligations. So EE/Voda walked.

[scaryjim]

Is it worth mentioning that EE and Vodaphone were the last two companies to fail to renew contracts? Perhaps they considered that without the other networks, P4U's business model was dead anyway. It is certainly hard to imagine how the stores could have continued with only one supplier.

I think that's an excellent point, tbh. The only benefit of P4U to the consumer was the ability to compare several different network options in one store. When most people bought through a reseller the networks had to maintain a presence in those stores or they would be giving up on potential market. As soon as any one network decided they no longer needed the sales from P4U, the writing was on the wall.

[Lorcaran]

The issue is that if Vodafone and Ee have colluded to do this then it becomes an issue.

Let's say P4U are worth 2 billion on paper. If they withdraw there supply and reduce the company to nothing but pure assets then that is either cold and calculated at best or damn right illegal at worst.

I do hope the government are watching to see if this gets repeated on other companies.

[peterb]

I'm passed the point of being annoyed by this... I would of been a few years ago but now, business as usual really.

I feel sorry for the staff that will now be moved on though, yet another change in the market where the population gets the back end of the stick through lower employability. It seems the market is changing pretty quickly and I imagine the slow pace of the economy is encouraging companies to take on more direct forms of selling their wares.

Tesla is essentially starting as a direct sales initiative and the American dealer system is up in arms about it.

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?

Except now they don't need to reduce prices and they can conspire with each other to fix them. This looks all planned by EE and Vodaphone and some of the virtual networks have been screwed over by them in the past too. So CPW is not safe.

They could do that anyway, the demise of P4U doesn't change that.

sales tend to be more expensive from either companies anyway and with EE I noticed even their retention deals are hardly existent anymore according to many people I have talked to.

I'll take your word on that - I don't think I have ever taken out a mobile phone contract from a reseller - at least not for at least ten years! None of the companies have particularly good retention deals for individuals. Corporates spending hundreds of thousands probably get better incentives anyway - but to you and me, it probably isn't worth the bother. I suspect margins on individual contracts are fairly tight.

EE has massively bumped up prices of their contracts in the last year,and Vodaphone is not much better. They have rebranded it as "4G" but most of the country has no 4G access and yet prices have doubled(or even more),and service has gotten worse. I am with EE and where I live in Kent,it really looks like they have been shutting down towers or not bothering to repair ones which have gone down for weeks.

Essentially it is 3 that is the only company that can keep prices in check and EE and Vodaphone,even though they use some of the EE infrastructure - but since they are part of Hutchison Whampoa,I don't really think they want to play too many games with them!

Remember the Orange was originally started by Hutchinson-Wampoa. As for EE, as a start up they would sell at rock-bottom prices to gain market share. But all the mobile phone companies made huge investments in spectrum allocation when the last (and previous) governments auctioned off the parts of the RF spectrum released by the moves to digital television and the re-allocation of the spectrum that had been used for analogue cell phones.

The issue is that if Vodafone and Ee have colluded to do this then it becomes an issue.

Let's say P4U are worth 2 billion on paper. If they withdraw there supply and reduce the company to nothing but pure assets then that is either cold and calculated at best or damn right illegal at worst.

I do hope the government are watching to see if this gets repeated on other companies.

And that is a big if (I have highlighted). But if the contracts P4U had with them came to an end, EE and Vodafone are under no obligation to renew them - just as you are under no obligation to renew your contract with your service provider at the end of the contract. And there is nothing at all illegal in that.

According to a report on R4 this morning, when P4U was sold, the prospectus to investors spelled out that one of the risks to the business was its reliance of the continuation of the contracts with the mobile phone companies, so the potential problem was recognised when it was bought.

[Top_gun]

According to this article, Phones4U provided 90% of new connections for EE & Vodafone. A substantial number indeed so it makes you wonder if P4U was stitched up so that EE & Vodafone can carve them up and have a bumper share of their profits.

[scaryjim]

According to this article, Phones4U provided 90% of new connections for EE & Vodafone. A substantial number indeed so it makes you wonder if P4U was stitched up so that EE & Vodafone can carve them up and have a bumper share of their profits.

Not quite ....

Vodafone and EE currently account for over 90% of the connections made by Phones 4u

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.

Of course, the other interesting fact mentioned in that article is that the contracts don't actually expire for 6 months (voda) and over a year (EE). It also reports that both companies have stated they would honour those contracts to give P4U time to develop alternative business strategies (although I note that one of the private equity consortium claims otherwise - believe who you choose). But frankly if P4U were genuinely concerned about keeping the business going they would have explored other business models when O2 pulled out, and they would continue trading for the next 6 months - which they claim they can do profitably - to protect the interests of their employees and explore ways of keeping the business viable (either through other network partners, or other business models). The fact is, they've effectively thrown all their toys out of their pram because two of their main competitors have decided that direct channel sales would be better for their business. Sorry P4U, but the more I read about this the less sorry I feel for you.

Also, I just spotted who wrote the article you linked I did think it was a rather well-balanced, well-written piece of journalism. For anyone who's new to Hexus in the last 2 - 3 years, Scott Bicheno used to be a member of the Hexus editorial team, concentrating on channel and business. Nice to read some of his work again!