Phones go dead at Phones4U

The blame game has begun after the mobile phone retailer fell into administration.

Mobile phone chain Phones4U collapsed into administration this week. Its major suppliers had abandoned it in recent months, with EE the last to go.

Having lost the sources for almost all of its sales, and with debts worth £635m (compared to operating earnings of £105m in 2013), the company's creditors pulled the plug, leaving almost 6,000 jobs at risk.

Its owners, private-equity group BC Partners, blamed the mobile operators for the firm's demise, while they blamed BC Partners for milking the business too hard. Founder John Caudwell, who sold to private equity in 2011, blamed both.

What the commentators said

The operators' view of events looks more credible, reckoned Nils Pratley on Theguardian.com. Phones4U said that Vodafone and EE's decisions to stop supplying it had come as a shock. "Really?" Both Three and O2 had already stopped allowing the retailer to sell its products.

"It was hardly beyond the realms of possibility that the other big operators would follow." Indeed, Vodafone "has been banging on for at least a year" about how it wants to sell more through its own shops and website.

Operators' profit margins have been squeezed as regulators crack down on the fees they can charge, noted Christopher Williams in The Daily Telegraph. So it's no surprise they have been "eyeing the share of handset and contract sales taken by middlemen such as Phones4U".

But while the writing was on the wall, BG's financial engineering didn't help. It took out a £200m dividend by piling on debt. This meant it got back the equity it had put into the group and then some but the higher gearing meant higher debt repayments. These made it harder to offer the likes of Vodafone appealing terms.

Caudwell shares some of the blame, said Chris Blackhurst in The Independent. Private equity's top priority is "a quick return and a smart exit". Once they had got their hands on Phones4U, it was unlikely ever to become "a growing, booming business with a market-leading, long-term future".

The upshot, for now, is that rival "Carphone is sitting pretty". But if the networks stick to wanting to do their own selling, how long will this last?

Recommended

The British equity market is shrinking
Stockmarkets

The British equity market is shrinking

British startups are abandoning public stockmarkets and turning to deep-pocketed Silicon Valley venture capitalists for their investment needs.
8 Nov 2019
Beyond the Brexit talk, the British economy isn’t doing too badly
Economy

Beyond the Brexit talk, the British economy isn’t doing too badly

The political Brexit pantomime aside, Britain is in pretty good shape. With near-record employment, strong wage growth and modest inflation, there is …
17 Oct 2019
Chipmaker Arm gets a helping hand from Nvidia
Tech stocks

Chipmaker Arm gets a helping hand from Nvidia

Arm, the British chip designer, is to be sold to a US peer in a record deal for the industry. The consequences will be far-reaching.
21 Sep 2020
How options traders are driving the stockmarkets
Stockmarkets

How options traders are driving the stockmarkets

Ordinary investors in the US are increasingly turning to options. And that's making the markets very volatile.
21 Sep 2020

Most Popular

Will a second wave of Covid lead to another stockmarket crash?
Stockmarkets

Will a second wave of Covid lead to another stockmarket crash?

Can we expect to see another lockdown like in March, and what will that mean for your money? John Stepek explains.
18 Sep 2020
Here’s why you really should own at least some bitcoin
Bitcoin

Here’s why you really should own at least some bitcoin

While bitcoin is having a quiet year – at least in relative terms – its potential to become the default cash system for the internet is undiminished, …
16 Sep 2020
James Ferguson: How bad data is driving fear of a second wave of Covid-19
UK Economy

James Ferguson: How bad data is driving fear of a second wave of Covid-19

Merryn and John talk to MoneyWeek regular James Ferguson about the rise in infections in coronavirus and what the data is really telling us.
17 Sep 2020