Phones 4U has put a brave face on the decision by Vodafone to end its network agreement, but the decision to hang up comes as a major blow.

Phones 4uU has put a brave face on the decision by Vodafone to end its network agreement, but however you look at it, the decision to hang up comes as a major blow.

The rationale of a shop like Phones 4U is that it allows consumers to explore and select contracts from a number of mobile operators; it’s rather like a department store for mobile, stocking lots of different brands and products.

So to have one of the major mobile players hang up on you is painful. To have two hang up is much more problematic. Yet this is exactly what has happened with Phones 4U losing agreements first with O2 and now with Vodafone.

In isolation these losses are serious, not least because the contracts have significant revenue attached to them that needs to be replaced.

However, replacing that revenue becomes all the more difficult given that Phones 4u will become a less compelling destination for consumers because it is unable to offer contracts with two of the major mobile players. This is something that its major competitor, Dixons Carphone, will no doubt make the most of in its future marketing and promotion activities.

Phones 4U does, of course, still have agreements with other mobile providers but it is now in a position of having most of its eggs in one basket.

This makes it very vulnerable, not least because one of these operators, EE, is also reviewing its distribution arrangements.

It is unclear whether the decision by Vodafone to end its agreement will make EE see its partnership with Phones 4U more or less favourably, but given the general trend in the sector for operators to consolidate distribution and place a greater emphasis on using their own stores the outcome hangs very much in the balance.

There are options open to Phones 4U. It could, for example, beef-up agreements with some of the smaller operators.

Equally, it could drive sales of its own Life Mobile service, which has generally been well received.

However, these are all ‘lest best’ options and not ones that Phones 4U would necessarily have chosen. They would also require a rethink of how the business works with, for example, much higher levels of marketing being required to achieve reasonable penetration of its own brand.

The example of Phones 4U is perhaps a salutary lesson to all retailers that they should be beware of being overly reliant on third-party providers that are not within their ultimate control.

If retailing is about anything it’s about adding value and creating strong USPs; that cannot be done, at least not sustainably, with a sole reliance on outside brands.

As for Phones 4U itself, it will now need to rethink what it can do to differentiate and ensure it remains relevant to consumers. If it doesn’t, it may find its place on the high street well and truly disconnected.

  • Neil Saunders, managing director, Conlumino

Vodafone hangs up on Phones 4u and ups distribution with Dixons Carphone