Phones 4u goes into administration – with 5,600 jobs at risk

Phones 4u went into administration on Sunday night, putting 5,596 jobs at risk after the retailer said it would not open its doors on Monday.

The closure of the retail chain that made the entrepreneur John Caudwell a multimillionaire comes after mobile network EE decided to stop selling through Phones 4u.

Disaster struck when Vodafone withdrew its business a fortnight ago. O2 had stopped selling through the retailer earlier this year and Three some time before that.

With only EE left to represent, Phones 4u's ability to offer customers choice by comparing prices across operators disappeared, and its final supplier is understood to have dealt the death blow on Friday after talks last week.

Phones 4u's private equity owner, BC Partners, said it would appoint PwC as administrators for its 720 outlets, including 550 stores, on Monday. BC acquired the chain in 2011 in a €770m (£610m) deal, but the highly leveraged business is currently saddled with debts of £635m.

Phones 4u will update its staff at meetings in store and at its headquarters on Monday, and BC insisted: "Employees will continue to be paid until further notice."

The retailer has pledged to refund customers in full for any orders that have not yet been dispatched. While there was grumbling on Twitter from customers who had ordered an iPhone 6 as recently as Friday, the company said it had ceased trading "as soon as practically possible".

Administrators will be left to decide whether the stores can reopen. Vodafone's contract with Phones 4u, which represents 20% of profits and revenues, runs until February 2015, and its deal with EE has more than a year left to run.

In January EE began a review of all the independent retailers it sells through with the intention of reducing the number of partnerships. The decision to part company with Phones 4u means EE is likely to continue selling through Dixons Carphone for the time being.

An EE spokesman said: "In line with our strategy to focus on growth in our direct channels and to move to fewer, deeper relationships in the indirect channel, and driven by developments in the marketplace that have called into question the long-term viability of the Phones 4u business, we can confirm that we have taken the decision not to extend our contract beyond September 2015."

BC executive Stefano Quadrio Curzio hit out at Vodafone, which had traditionally favoured Phones 4u over its larger rival Carphone Warehouse.

He said: "Our overriding concern is for all the dedicated hardworking employees of Phones 4u at a time of uncertainty for the company.

"Vodafone has acted in exactly the opposite way to what they had consistently indicated to the management of Phones 4u over more than six months. Their behaviour appears to have been designed to inflict the maximum damage to their partner of 15 years, giving Phones 4u no time to develop commercial alternatives.

"EE's decision on Friday is surprising in the context of a contract that has more than a year to run and leaves the board with no alternative but to seek the administrator's protection in the interests of all its stakeholders."

Carphone's decision this year to merge with electricals retailer Dixons is thought to have been prompted by growing unrest among its biggest customers – the mobile networks whose connections it sells. Three pulled its business from Carphone earlier this year.

Hammered by the financial crisis and regulated price cuts to the cost of phone calls, with Europe tackling bill shock by imposing strict limits on how much customers can be charged for using their phones on holiday, networks have been looking for savings.

An obvious place to cut was in the use of third-party resellers, who have enjoyed healthy margins in the UK compared with elsewhere in Europe. Vodafone has invested heavily in expanding its own-brand stores, making it less reliant on Phones 4u and Carphone.

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 £100m, 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."

Known for its controversial advertising campaigns, including a banned ad featuring a cartoon Jesus, Phones 4u was aimed squarely at the youth market, a hard-to-reach demographic for Vodafone in particular, which is regarded as the business person's network.

It is understood that EE sold around 10% of its connections through Phones 4u, but the company will now rely more heavily on its string of 570 stores across the UK, and on its remaining contract with Dixons Carphone.

Caudwell founded the business in the mid-1980s. By the time he cashed in his shares for £1.5 billion in 2006, it was selling 26 phones a minute and employed 10,000 people. It generated sales of more than £2.25 billion.

Phones 4u said it remained profitable, with turnover of more than £1bn, underlying earnings of £105m in 2013 and significant cash in the bank.

Credit rating agency Moody's, which downgraded its outlook for the company's ability to repay its debts last week, said Phones 4u had £205m in notes due by 2019, £430m due in 2018, and a £125m revolving credit facility.