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O2 hopes to use Carphone Warehouse’s loss of a key deal with Vodafone as “an opportunity” to cut the substantial commissions it pays the country’s largest mobile phone retailers, its chief executive said on Friday.
Peter Erskine voiced much-needed support for Carphone by declaring the UK’s biggest mobile phone operator had “no plans to walk away” from the retailer. However, he said Vodafone’s surprise decision to drop Carphone for sales of mobiles on monthly contracts gave O2 the chance to cut its commissions to Europe’s biggest mobile phone retailer and Phones4U, its UK rival.
“My first reaction was ‘What an opportunity for us’ because Carphone will need us to be sticking in there. Phones4U will need us not to walk away,” Mr Erskine told the Financial Times.
Carphone’s shares closed down 2 per cent at 303.5p, after falling 14 per cent on Thursday when Vodafone said it would sign an exclusive one-year deal with Phones4U. Carphone was a “good partner” and “we work well with them”, Mr Erskine said. “We have no plans to walk away.”
However, he said Vodafone’s decision would put pressure on Carphone and Phones4U during negotiations with O2 over the commissions paid by the operator to the retailers for sales of mobiles, which represent one of its “biggest costs”.
“If you more or less say us and Voda are the kings in the UK . . . Charlie [Dunstone, Carphone’s chief executive] will need to keep us,” said Mr Erskine. “We want to stay a partner, but there are always opportunities there.” At 16.8m, O2 has the biggest number of mobile customers in the UK. Vodafone, however, has the biggest revenue share of the UK market.
Mr Erskine said Vodafone’s exclusive deal with Phones4U would “in theory” damage Carphone’s business model because it has wooed customers by offering them deals with all the big operators. “Carphone are very shrewd,” he said. “I would be very surprised if they don’t find a good way to play through it.”
Jim Hyde, managing director of T-Mobile’s UK business, said it regarded Carphone as an “important” partner. An Orange spokesman said: “We have a relationship with Carphone and there are no plans to change that. Our first preference would be to continue that relationship.”
Mr Dunstone told the FT that Vodafone’s decision would not hit Carphone’s business model and he stood by its guidance of pre-tax profit of £120m for 2006-07. “The business is on a very sound footing,” he said.