Carphone Crashes as Vodafone Pull and Orange Threaten

Vodafone has announced that they have signed an exclusivity deal with Phones 4U where the independent high-street retailer will have 100% of Voda’s third-party business, causing Carphone’s share price to plummet.

Carphone were over the moon earlier this week when their share-price rose 8% following the acquisition of AOL, but have since seen it dive by 14% after Voda’s announcement. Surely that would be the end of it. However, Orange aren’t looking too happy either, possibly looking to pull from the high street-retailer in the next few months, dropping Carphone shares a further 5%.  

Vodafone’s bold move means that Phones 4U will have 100% of Voda’s third-party business, but there is some ambiguity as to their reasoning behind it.

During the last two years, Vodafone has built up it’s direct channel capability and wrenched back the management of existing contract customers from independents to the point where it now controls 100% of it’s contract customer base in the UK.

Nick Read, chief executive of Vodafone UK said the Phones 4U deal "will compliment our significant direct distribution capability and ensure we can target all key customer segments through the channel of their choice".

It would seem that Vodafone are looking to sell 100% of it’s business directly but admit that they have problems reaching high-spend customers, notably the 16-34 market.

Ian Shepherd, Director of Commercial Operations at Vodafone told Mobile Business "The 16-34 year-old market are very technically literate, and research shows they are up for using Vodafone but are hard to reach directly" This is where Phones 4U come in. With it’s whacky advertising campaigns, the high street retailer has an excellent reach in the 16-34 year old market, and Vodafone want to take advantage of that.

"Why indirect at all? To reach the customers that we wouldn’t normally be able to." he added, and admitted that Carphone could not provide what they were after.

Direct sales for Vodafone will always be favourite, and they aren’t sitting around when it comes to their own stores. With a £15m investment in an award winning optimisation programme, they hope to have 100 of their 347 stores optimised by April 2007.

"We’re concentrating on increasing sales per store, rather than total number of stores." said Shepherd.

With this exclusivity deal in place Vodafone are now in a position to grow market areas that had previously caused them difficulty, but were Phones 4U chosen because they’re the best people for the job? Maybe not.  

Rumours abound that Phones 4U has taken a 20% cut in commissions, and guaranteed to give Vodafone a large percentage of their subscription sales every month in order to gain the exclusivity deal over Carphone, who were supposedly offered the deal first but refused.

In a message to the staff, Carphone boss Andrew Harrison said "Vodafone approached us to do the same deal and we would and could not go anywhere near it with the terms on offer. It goes against everything we stand for. We have together built CPW on the fundamental principle of IMPARTIAL advice. This cannot and will not EVER be compromised: it is the foundation on which our customers trust us."

"Less than 10% of our subscription customers today choose Vodafone as their contract of choice. This is simply because 90% of customers feel they are getting a better deal from another network. It is a sad day for Phones 4 U customers, to know that they are not being offered the best deal for them but instead the best deal for Phones 4 U and Vodafone." he added.

Jim Slater, marketing director at Phones 4U would not deny any deal stating that "Any agreements are between Vodafone and us" but went on to say that they would remain impartial and would definitely not be promoting Vodafone over any other network.

So is this a case of sour grapes, or is The Carphone Warehouse not up to the job?

An Orange spokesperson said "We are currently in the process of reviewing our independent strategy for 2007′, but confirmed their relationship with Phones 4U remains unchanged.

O2 stated that "Carphone Warehouse will continue to play an important part in our distribution strategy" but couldn’t confirm that Carphone Warehouse was performing in the 16-34 market, only that they were "very happy with the customer base that The Carphone Warehouse provides."

Virgin Mobile, on the other hand, are placing their foot firmly in the Carphone camp.

"CPW is a valued and important channel partner for Virgin Mobile and that we continue to work with them accordingly. Furthermore the companies share similar backgrounds, culture and ambition which furthermore augments a strong commercial relationship" a spokesperson said.

We guess this is PR gobbledegook for "we’re very happy and looking forward to increased connections through Carphone now Voda’s gone".

Carphone may be a bit bruised from a 20% drop in the company’s value in the past couple of days, however Phones 4U shouldn’t be cracking out the champagne just yet. It will now remain to be seen if they can justify their exclusive deal by hitting Vodafone’s targets whatever they may be. If not, Voda are beefing up their retail arms and  by the time they have gained the advantage 4U might provide, the operator could hit Phones 4U hard by pulling everything in direct.

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