Uncertain future for Phones 4U after chain collapses into administration

PHONES 4U, Britain’s second-biggest mobile retailer, faces an uncertain future after the chain collapsed into administration.

A decision by the mobile network EE not to renew its contract left Phones 4u without a single network partner after Vodafone said earlier this month that it would be cutting ties with the company.

A total of 550 stores were closed this morning, including 38 in Yorkshire, pending a decision by administrators from PwC about the company. The closures affect 227 Phones 4u employees in the region, out of a total workforce of 5,596.

Rob Hunt, joint administrator and PwC partner, said: “This is a very sad day for the business and the many people working there. In light of our impending appointment the directors understandably took the decision to close all the shops today and sent many staff home.

“Our initial focus will be to quickly engage with parties who may be interested in acquiring all or part of the business, and to better understand the financial position and options for the company. “The stores will remain closed while we have these conversations.

“We will also be talking to network operators and suppliers, and trying to access funds to pay for the costs of the business, including wages.

“These conversations will determine whether we can re-open stores and trade, and also if and when we can pay the arrears of wages to employees. Our hope is that we will be able to pay all the outstanding wages arrears.”

The Phones 4u empire was founded by Midlands-based entrepreneur John Caudwell in 1987 after he spotted the potential of the new mobile phone market.

In 2006, he sold the company for £1.5 billion. At its peak, the firm employed 10,000 people and generated sales of more than £2.25 billion. In 2011, private equity firm BC Partners bought the company from another private equity business.

David Kassler, chief executive of Phones 4u, said: “Today is a very sad day for our customers and our staff. If the mobile network operators decline to supply us, we do not have a business. A good company making profits of over £100 million, employing thousands of decent people has been forced into administration. The great service we have provided should have guaranteed a strong future, but unfortunately our network partners have decided otherwise.

“The ultimate result will be less competition, less choice and higher prices for mobile customers in UK.”

Meanwhile, a row broke out between Vodafone and Phones 4u after Vodafone “strongly rejected” claims that it acted improperly in pulling out of Phones 4u, pinning the blame instead on the decision by the BC Partners to load it with high-interest debt and collect a £200m windfall.

Last September, Phones 4u placed £205 million in bonds on the Irish Stock Exchange that yielded 10 per cent interest. BC Partners then took the cash raised out of the business as a special dividend.

A Phones 4u spokesman said: “This is about network operators pulling their business and nothing to do with the dividend in a financially healthy company.

“This is a shoddy way for Vodafone to deflect attention from their actions.”

A spokesperson for EE said the decision not to renew its contract with Phones 4u was “driven by developments in the marketplace that have called into question the long term viability of the Phones 4u business”.

The spokesperson added it was also “in line with our strategy to focus on growth in our direct channels”.

Phone 4u’s overall group turnover was more than £1 billion in 2013.

Empire that had sales of £2.25bn and sold 26 phones every minute

At its peak, Phones 4u employed 10,000 people, generated sales of more than £2.25bn and sold 26 phones every minute.

But the company, which made its founder a billionaire, began life when John Caudwell and his younger brother, Brian, bought 26 phones at a discount after Mr Caudwell realised the business benefits that owning a mobile phone would bring to his car dealership when bidding at auctions.

It took nine months to sell the Motorola handsets which, in the mid-80s, were the size of bricks. But Mr Caudwell was convinced they would catch on.

He was right – as the mobile phone market soared, he left the car industry and set up what would later become Phones 4u in 1987.

From a small dealership called Midlands Mobile Phones, the entrepreneur built up the business, enabling him to leave the back streets of Stoke-on-Trent behind to become one of Britain’s richest men.

The fledgling venture quickly transformed into a wholesale distributor under an aggressive retail expansion based on hard work and attention to detail.

Then, in 2006, Mr Caudwell sold the Phones 4u business for £1.5bn to private equity firms Providence Equity Partners and Doughty Hanson.

They in turn sold it to BC Partners in 2011.

By 2014, Phones 4u had amassed 550 standalone stores, employing 5,596 people.

Phones 4u says it remains a profitable business despite racking up sizeable debts after many years of private equity control.