HomeFinancial/RegulationPhones 4U collusion trial ends amid huge costs and wrist slapping

    Phones 4U collusion trial ends amid huge costs and wrist slapping


    Three UK operators found not guilty, nine years after the retailer closed down and after five years of litigation, but an appeal is possible

    The judge who oversaw the trial that accused the UK’s three biggest mobile network operators of deliberately putting the high street retailer, Phones4U, out of business ruled against this claim. Phones4U called in the administrators in September 2014,

    The case dragged in all four of Europe’s largest operator groups: the defendants included EE because it was then owned by Orange and Deutsche Telekom (BT acquired the operator subsequently), Telefónica (O2) and Vodafone.

    It is thought that Phones4U intended to claim damages of more than £1 billion, according to this statement from Three Verulam Buildings Barristers.

    Change of direction

    Mr Justice Roth decided they did not collude either to bolster their own market positions nor to destroy the retailer. The founder of Phones4U, John Caudwell, had accused Vodafone, EE and O2 of refusing to supply the retailer as part of a strategy to reduce competition and fatten their own margins. He started the chain of shops in 1980s and sold it for £1.5 billion in 2006 to private equity group. It was bought in 2011 by BC Partners for £610 million.

    The court rejected claims that the network operators’ actions broke competition law and claims that network operators – and EE in particular – were in breach of contract for ending the arrangement with the retailer. EE ending its arrangement with Phones4U dealt the final blow to the retailer.

    Different interpretations

    When Phones4U collapsed, Stefano Quadrio Curzio, an executive at BC Partners, was quoted saying, “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.”

    Vodafone had set aside £1 billion to cover the costs of the litigation. The court found that Vodafone’s decision to no longer supply mobile phone ‘connections’ to Phones 4U was found to be the result of an extensive process of commercial analysis, in which it acted independently and without knowledge of its competitors’ actions, according to Three Verulam Buildings Barristers.

    Failed collusion

    Justice Roth ruled that an attempt to engage in collusion had been made by then O2 UK CEO Ronan Dunne with EE’s then CEO, Olaf Swantee, but that, in the event, these actions did not break the law nor affect O2’s actions. Other accusations that there were many meetings to further collusion between the various parties between 2012-2014 were given no credence by the court.

    Dunne went on to be an Executive Board Director at Telefónica Group (2014-2016), EVP and CEO of Verizon Wireless and Verizon Consumer Group (2016-2021), then Strategic Advisor to the CEO at Verizon (from January 2022 to September last year). Among other things, he is now a non-exec director of British high street retailer Marks & Spencer and Chairman of Six Nations Rugby.

    Swantee continued as CEO at EE for two more years, leaving in 2016 to become CEO of Swiss operator, Sunrise which is now owned by Liberty Global, which he left in 2020. His departure was not long after Sunrise abandoned a $6.39 billion deal to acquire Liberty Global’s Swiss division, UPC, in the face of shareholder resistance. Swantee had been an enthusiastic supporter of the deal. In a volte-face, later in 2020, Liberty Global acquired Sunrise.

    Among very many other things including finance, he has  been a non-exec director since leaving EE at T-Mobile US, Vodafone and Telia, and Chair of T-Mobile Nederlands, and remains in the role since the market consolidated and the merged entity become Odido in September.

    Not best behaviour?

    While the judge decided the law had not been broken, he criticised the several of the top executives for failing to observe corporate guidance.

    A date for a hearing is to be set up 5 December 2023 at which loose ends will be tied up such as awarding costs – which will be in the tens of many millions – and applications to appeal.

    Administrators for Phones4U ringfenced about £50 million to cover defendants’ costs if it lost the trial, but it is thought they are likely to be rather higher.

    A copy of the ruling can be downloaded here.