UK's Phones 4u administration puts 5,596 jobs at risk

[September 15, 2014]  (Reuters) - British mobile phone retailer Phones 4u [PHONE.UL] is seeking administrators, putting 5,596 jobs in jeopardy, after the country's biggest mobile operator EE joined Vodafone in not renewing its network agreement. 

The contract with EE, which comprises T-Mobile and Orange, was crucial to Phones 4u's future after it lost Vodafone's contract earlier this month, leaving the company with EE as its only partner.

The EE contract ends in September next year.

"If the mobile network operators decline to supply us, we do not have a business," said Phones 4u Chief Executive David Kassler.

Phones 4u, majority-owned by private equity firm BC Partners [BCPRT.UL], said it was seeking the appointment of administrators from PwC [PWC.UL] and its 550 UK stores would not open on Monday, pending a decision by the administrators on whether the business can be reopened for trading.

The firm said all mobile contracts bought through Phones 4u will remain unaffected and the networks will continue to provide mobile services to these customers.
 

Phones 4u, which in 2013 made an underlying profit of 105 million pounds ($170.56 million) on turnover of over 1 billion pounds, said the withdrawals by Vodafone and EE had come as "a complete shock to the business."

"The great service we have provided should have guaranteed a strong future, but unfortunately our network partners have decided otherwise," said Kassler, adding that the ultimate result will be less competition, less choice and higher prices for mobile customers in Britain.

EE said in June it was reviewing sales through third-party retailers.

BC Partners representative Stefano Quadrio Curzio said EE's decision was surprising as the contract had more than a year to run.

Shares in Dixons Carphone, Phones 4u's main rival, rose as much as 4.3 percent on Monday.

The company's problems appear to help its main rival, said independent retail analyst Nick Bubb, "but not if it means that the mobile phone networks are about to start taking more control of the distribution chain."

Seb James, CEO of Dixons Carphone, said last week the firm was happy with its network relationships.

Phones 4u was set up by entrepreneur John Caudwell in the 1980s. He sold the business to Providence Equity Partners and Doughty Hanson for 1.46 billion pounds in 2006.

Providence Equity Partners and Doughty Hanson sold off parts of the business before selling the rump to BC Partners for about 700 million pounds in 2011.

Phones 4u's debt includes 430 million pounds of 9.5 percent senior secured notes due 2018 as well as subordinated payment-in-kind (PIK) notes.

The firm said on Sept. 1 it had 93 million pounds of cash as of the end of July.

(1 US dollar = 0.6156 British pound)

(Reporting by Aurindom Mukherjee in Bangalore and James Davey in London,; Editing by Eric Walsh and Louise Heavens)

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