Private equity blamed for Phones 4u demise

Mobile networks tell High Court accusations they colluded against retailer are a ‘conspiracy theory’

BRITAIN’S biggest mobile networks have blamed greedy private equity investors for destroying Phones 4u and dismissed claims that they plotted the retailer’s downfall as a baseless “conspiracy theory”.

On the second day of a trial in London’s High Court, lawyers defending EE, Deutsche Telekom and Orange said the retail chain’s downfall was an “alltoo familiar tale” of profiteering and bad management decisions.

They said Phones 4u was “bled dry” and saddled with crippling debts under the ownership of BC Partners, the private equity firm that bought the company in 2011, as bosses and investors were “more concerned with lining their own pockets” than ensuring the company’s survival.

Phones 4u collapsed in 2014 after Three, O2, Vodafone and EE all pulled their products from its shelves. It prompted the closure of hundreds of stores, with thousands of staff losing their jobs.

Administrators of Phones 4u have accused the mobile companies of conspiring to destroy the retailer, which earned commission for selling handsets, in an attempt to boost their profits.

Top executives at the mobile firms, who met or spoke with each other on several occasions, have been accused of “brazenly anti-competitive” behaviour.

But Meredith Pickford QC, speaking for EE, a subsidiary of BT, dismissed the claims as an “ingenious” confection.

“The problem with [this] conspiracy theory is that, in common with most conspiracy theories, it relies more on imagination than it does on evidence,” he told the court.

Mr Pickford argued that Phones 4u’s finances had become fragile under the ownership of BC Partners and that the retailer had then been “checkmated” when its arch-rival, Carphone Warehouse, merged with electronics chain Dixons to become the dominant independent phone retailer.

This left Phones 4u in a position where it offered less attractive terms to the mobile companies and the quagmire only worsened when Three and O2 pulled their products.

Mr Pickford added: “The truth is Phones 4u did not have the degree of power that it claims.”

He said it was “telling” that rather than try to shore up Phones 4u’s position, its private equity owners had decided to “extract a huge dividend for themselves” worth £223m in September 2013. The payment came after the company took on another £205m in debt.

In their legal arguments, Deutsche Telekom’s lawyers added: “The real story of Phones 4u is an all-too familiar tale of short-term profiteering by private equity that left a carcass of a company owing hundreds of millions to creditors.”

Orange also accused BC Capital of seeking to enrich itself “rather than investing” in the business.

The trial, which is presided over by Mr Justice Roth, began on Monday and is due to continue for several weeks.

EE, Vodafone and O2 have been accused of breaching competition laws by “nakedly” colluding to ensure Phones 4u’s demise, by agreeing in advance to pull their products. France’s Orange and Germany’s Deutsche Telekom, which co-owned EE at the time, are also said to have been involved, along with Telefónica, O2’s owner.

Kenneth Maclean, representing the collapsed retailer, said top executives at the mobile companies wanted to cut out the middleman to boost their own profits. They coordinated to prevent a situation where one company pulled its products and the others did not follow suit, leaving it at a disadvantage, he said.

All the mobile companies deny any wrongdoing. EE, Vodafone and O2 say they each independently decided to cut ties with Phones 4u.