Don't be fooled by the scenes of people queueing at Apple stores around the country last Friday to bag the latest iPhones.
The reality is that the phone business in this country is shrinking and Phones 4u, the nationwide retailer that collapsed into administration last Sunday night, is only the first casualty.
The retail chain, which grew out of the company John Caudwell founded in 1987, was killed off because the mobile networks didn't want to give Phones 4u £100-£150 for every customer it signed up. They are having to fight for every customer and penny of revenue and profit right now, and they'd rather keep the money.
Caudwell said the decision by Vodafone and EE to stop allowing Phones 4u to sell phones that connect to their networks was "astonishingly ruthless". He blamed them, along with the chain's private equity owners, for Phones 4u's destruction. The entrepreneur's comments caused amusement in the industry, where he and the company he used to own (he sold it to private equity business BC Partners for £700m in 2011) had a reputation for tough dealmaking.
Vodafone pounced on the stricken retailer on Friday, buying up 140 stores to bring its own chain up to 520 shops (and saving the jobs of 900 Phones 4u staff); more stores could be sold to EE, which is in talks with the administrator.
Ruthlessness has become the network owners' watchword now, because the mobile phone boom they have ridden for nearly 20 years is over.
They guard their cashflow increasingly jealously, and one particular sticking point that led to the collapse of Phones 4u is understood to have been the chain's insistence that if it signed a customer up to a network, it should get the entire commission upfront, rather than piecemeal over the life of a 24-month contract. (Carriers had a "clawback" clause in case customers abandoned the contract.)
Back in the mid-1990s, when Phones 4u and Charles Dunstone's Carphone Warehouse aimed to cash in on the first mobile phone boom, carriers were scrambling to sign up customers as handsets from Nokia and Sony attracted the masses. The carriers were happy for retailers to sign up customers for them: the retailers got a cut of the contract over its lifetime, the customer got a phone, the carrier got a customer. While the phone business was good, everyone benefited.
Then, just as the boom was petering out, smartphones arrived on the high street – first from Apple in 2007 and then from HTC and Samsung – kicking off a second surge. Now, though, that too is slowing. Data from Kantar ComTech's WorldPanel shows that the UK is fast approaching "smartphone saturation", with roughly 75% of people who own a handset already owning a smartphone.
According to researchers CCS Insight, smartphone ownership will hit 90% by the end of next year; but handset sales will fall 11% this year, after having slipped 4% last year, because people are hanging on to them for longer.
The logic of cutting out middlemen – at least, uncooperative ones – has become irresistible. Ofcom's data shows that average revenue per user for mobile networks fell from £16.13 in 2012 to £15.26 by March 2014, while the total number of subscribers (including businesses) fell very slightly from 83.4 million to 83.2 million.
That fall in revenue per user translates to £75m of lost sales for the carriers, even as they try to upgrade their networks to 4G and cope with cuts to roaming prices and charges to connect to other networks forced on them by European and UK regulators.
Phones 4u's collapse "reiterates the challenges of bricks-and-mortar trading following the collapse of electronics retailer Comet in 2013," says Ben Wood, CCS's head of research. "The loss of its fiercest competitor may appear to strengthen the position of Dixons Carphone, but the company should not underestimate the consequence of greater efforts by UK network operators to invest in their own stores, or the trend towards online purchasing," he adds.
EE is understood still to be negotiating with a "second tier" of 30 companies, including Argos, which provide a notable number of fresh customers via their high street outlets.
For the operators, though, running their own outlets brings many advantages. They don't risk geographical overlap with an aggressive intermediary, and they control the standards and quality of service. "Let's just say that Phones 4u's interests weren't always aligned with the customers', or the networks'," one source commented last week.
The other growing rivalry to the high street chains is the internet, where more and more people order not just phones, but also sim cards for handsets they have bought themselves. "Sim-only" contracts benefit the carriers, which don't then have the capital costs of buying handsets, but also are cause for concern, since people can switch away from them without warning.
Apple, in fact, is one of the prime beneficiaries of this change, as it sells its iPhones directly from its stores – a move that Samsung, its biggest rival, has been seeking to emulate by opening another 15 UK outlets. Unfortunately, they were inside Phones 4u outlets.
So is even Dixons Carphone, the £3.8bn merged company from the high street chains of Dixons and Carphone Warehouse, at risk from carriers seeking to claw back profit?
There are two signs that it should be worried. First, the Three network stopped selling its handsets through Carphone Warehouse in 2013; it had done the same with Phones 4u in April 2012. Second, EE has not yet completed its negotiations on a new deal – exactly the problem that eventually led to the domino effect that killed Phones 4u.
However, industry sources outside EE suggest Dixons Carphone is likely to survive. First, Dunstone holds huge sway, and is courted by handset makers around the world. "He will have been over there in Cupertino for Apple's launch last week," said one source outside the company. "He's a power in the industry."
Second, Dixons Carphone also has the advantage that it doesn't rely solely on mobile sales; it sells computers, tablets and related accessories as well, giving it a cushion against any network withdrawing support.
And while Dixons Carphone might not sell Three handsets, it does sell its data-only sims for tablets, and the two are said to be in talks about creating a mobile virtual network operator, just as Virgin uses EE's network.
For the Apple customers who had preordered their new iPhones through Phones 4u before the administrators were called in, the news that they are just casualties of the broader phone market won't be much compensation.
In the future their experience – and the sight of shuttered shops – are likely to be more common than the whooping crowds around Apple's stores.
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