Et 4U, Brutus: Are telcos plotting to dominate the mobile handset sales market?

Did Britain’s biggest network operators engage in a “shadowy” conspiracy to consolidate the handset sales market, leading to the collapse of retailer Phones4U in 2014? As a major trial investigates these seismic claims, we take a look at independent mobile retailers, and how they’re resisting declining high street sales.

Phones4U’s administrators are currently taking EE, Deutsche Telekom, Orange, Telefónica and Vodafone to court over “prohibitions on anti-competitive arrangements,” claims which the MNOs strongly deny.

Administrators claim that the firm’s collapse back in 2014 was the result of a conspiracy between the MNOs to take down the independent retailer so they could sell pricey then-new 4G handsets directly to customers.

Representing Phones4U, Kenneth MacLean QC points to evidence of an “extraordinary series of anti-competitive contacts” between the MNOs, including a recording of a deal made between the then-bosses of EE and O2 contained on a reportedly now-lost iPad.

Phones4U was established by businessman John Caudwell in 1987, selling mobile phones and contracts for the major network providers, often at a reduced cost, earning commission on each sale. This discounting may have ultimately spelt doom for the company, with speculation that lower prices of then-new 4G phones was putting MNOs on edge.

When sold to Providence Equity Partners for £1.47 billion in 2006, the company was generating annual sales of over £2.25 billion. Alas, the firm slipped into administration in September 2014 after EE and Vodafone, by then Phones4U’s only commercial partners, decided not to renew their contracts. O2 had previously ended its deal earlier that year in April.

The collapse of Phones4U certainly proved lucrative for these accused MNOs. EE absorbed Life Mobile, Phones4U’s MVNO with 85,000 subscribers, shortly after the firm folded, while Vodafone took over 140 former Phones4U outlets, cutting more than 600 jobs at the company’s headquarters.

Dixons Carphone, its sole major high street competitor at the time, also took over Phones4U concession stands in their Currys and PC World stores. Created as part of a 2010 deal, it was announced that this partnership would also not be renewed following Dixons’ merger with Carphone Warehouse, a £3.8 billion deal that Phones4U reportedly attempted to scupper. The collapse of Phones4U resulted in a 5% rise in revenues over the next six months for Dixons Carphone, which was left as the sole independent high street phone retailer, until the closure of its own shops in 2020.

Meredith Pickford QC, representing EE, said there was a more “simple and unsensational” cause for the collapse of Phones4U: “Phones4U’s management… made some bad commercial decisions and found themselves checkmated by a stronger competitor in Carphone Warehouse and it involves Phones4U’s shareholder and management team, who were more concerned with lining their own pockets than they were with running Phones4U for the long term.”

There are arguments in favour of both approaches between MNOs selling directly to customers via their own retail stores and online channels, versus going through an “independent” dealer.

Going through MNOs, customers can access the newest models, and bundled offers for additional services such as landline and broadband, though phones will likely be locked to a particular network, making switching to a different provider difficult. Whereas handsets from resellers can be much cheaper than those directly from networks, and will often come with their own perks or offers – provided you don’t mind going through a middleman.

Online channels accounted for only 20% of handset sales worldwide in 2019; though this percentage is increasing, the vast majority of consumers are still going in-store to buy their latest phone, and many telcos are beefing up their bricks-and-mortar holdings in the knowledge that, otherwise, they’ll struggle to reach their total addressable market.

For example, last year, Australian telco Telstra bought its franchised retail stores, bringing direct ownership of customers totally in-house to “further develop a consistent and integrated customer experience across our online channels and store network,” while in the US in 2017, Sprint bought out the US wing of Dixons Carphone.

Dealers may come in and out of fashion, but with fewer independent retailers offering cheaper handsets and the temptation to buy from disreputable online sources, consumers will inevitably suffer from an increasingly concentrated market, particularly as costs begin to bite.