Phones 4u Ltd.

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Phones 4u Ltd.

Phones 4u House
Ore Close
Lymedale Business Park
Newcastle-under-Lyme, Staffordshire ST5 9QD
United Kingdom
Telephone: (+44 870) 905 0416
Fax: (+44 1782) 600 609
Web site: http://www.phones4u.co.uk

Private Company
Incorporated: 1987 as Midland Mobile Phone
Employees: 6,000
Sales: £600 million ($900 million) (2005 est.)
NAIC: 453998 All Other Miscellaneous Store Retailers (Except Tobacco Stores); 517212 Cellular and Other Wireless Telecommunications

Phones 4u Ltd. is the United Kingdom's fastest-growing independent mobile telephone retailer, and is also one of the country's largest, behind sector leader Carphone Warehouse. Phones 4u is continuing its ambitious expansion, which has transformed the company from a midsized player with just 60 stores at the beginning of the twenty-first century to an industry heavyweight, with 400 stores in operation at the beginning of 2007. Phones 4u operates stores throughout England and Scotland, and has also extended its network into the Republic of Ireland. The company's stores are typically located in the country's high-traffic city center shopping districts. Once known for its aggressive sales tactics, Phones 4u has successfully repositioned itself as one of the United Kingdom's leaders in customer satisfaction. This transformation has also enabled the company to achieve a growing share of the all-important repeat customer market, as the U.K. mobile telephone sector approaches saturation. Through its network of stores, Phones 4u sells a full range of mobile telephone handsets and accessories; the company also acts as an intermediary for all of the United Kingdom's major mobile telephone service providers. Phones 4u has also entered the lucrative market for sales of content services as well, and has been eyeing an expansion of its in store product assortment to include other high-tech items, such as video gaming consoles. Phones 4u was acquired by Providence Equity Partners during the break up of The Caudwell Group in September 2006. The company posted revenues of more than £600 million ($900 million) in 2005.

FOUNDING A MOBILE TELEPHONE RETAIL GIANT IN 1987

Phones 4u stemmed from a group of companies established by John Caudwell and his younger brother Brian in 1987. Their life often described as a "rags to riches" story, the Caudwells grew up as part of a middle class family in Stoke-on-Trent; Caudwell's father was a sales representative, while his mother managed a mail room. Caudwell himself left school at the age of 17 and took up an engineering apprenticeship with the Michelin Tyre Company. By the time he was 27, Caudwell had been promoted to shift manager. By then, Caudwell had already launched his first side business, setting up a grocery store with his wife when he was just 20. That venture proved less than successful, however. Instead, in the late 1970s, Caudwell and brother Brian launched a new side business, repairing and selling used cars from their home garage. By 1980, the brothers had decided to set up their own business, establishing a used car lot in Stoke-on-Trent.

Like many used car dealers, Caudwell attended local car auctions. In 1987, Caudwell recognized that he could boost sales if he could contact prospective clients while he was still looking over the cars before the start of an auction. This idea led Caudwell to discover the first mobile telephones just then being introduced to the market by Motorola. These early telephones were prohibitively expensive, however, costing some £1,500 each. Caudwell contacted Motorola to learn if there was any possibility of receiving a discount, and he found that the company offered discounts for purchases of multiple handsets, with the provision that Caudwell become a dealer for the company.

Caudwell agreed and placed an initial order for 26 telephones, then set up a small, ten-foot-square shop in Stoke-on-Trent, hiring two salesmen. Caudwell called the new company Midland Mobile Phone, underscoring the company's regional roots. Business was slow, however, and it took Caudwell more than six months to sell out his initial order.

Despite the slow start, Caudwell recognized the enormous potential of the new technology. His patience was soon rewarded as the first mobile telephone boom became evident at the end of the 1980s. By the end of 1988, Caudwell's sales had already topped £1 million, before expanding exponentially into the 1990s.

Caudwell was also quick to establish his operations into the wholesale market as well, setting up his first wholesaling business by 1989. This operation later grew into the 20:20 Logistics group of companies, which established itself as one of the leading mobile telephone wholesalers in Europe. By the start of the 1990s, Caudwell had entered the mobile phone accessories market as well; that operation, which became known as Dextra, grew into a European leader in its market as well. The added operations helped boost the company's revenues past £5 million in 1989, and then past £13 million in 1991.

GROWTH AND DIVERSIFICATION

Caudwell began expanding his network of retail stores during the early 1990s. By 1994, the company had expanded its network beyond the Midlands region. In order to reflect the retail business's increasingly national coverage, Caudwell re-branded the retail operation under a new name, Phones 4u. In that year, also, the company adopted the new name of Caudwell Communications.

At the same time, the mobile telephone market provided additional opportunities for Caudwell's increasingly expansive interests. The high cost of early handsets and their relative fragility encouraged the company to develop its own repair department. The fast growth of the company's repair business encouraged Caudwell to spin off the department as a separate company, called the Mobile Phone Repair Company (MPRC), in 1996. MPRC then became then expanded its operations beyond the United Kingdom, targeting especially the European continent, through the second half of the decade. This effort followed the successful expansion of the group's 20:20 Logistics subsidiary, which had set up operations in a number of markets, including Denmark, Germany, Norway, Ireland, Spain, and the Netherlands.

By the end of the 1990s, Caudwell's interests moved beyond handsets into developing its own telephone services. As part of this effort, the company added two businesses, Reach Telecom (later renamed as Caudwell Communications), which provided fixed-line telecommunications services, and Caudwell Airtime Services, which serviced airtime sold via the company's Phones 4u retail chain. The latter business, formed in 1997, later expanded its operations to include a full range of mobile-telephone-based customer services. As a result, the subsidiary adopted a new name, Singlepoint. The company's airtime and retail divisions had in the meantime also expanded onto the European continent, establishing operations in the Netherlands in 1996. By 1998, the company's interests had taken it as far away as Hong Kong.

COMPANY PERSPECTIVES

We are passionate about customer service and believe our store staff are the friendliest, most experienced and customer-focused in the mobile phone market.

As an independent retailer with such a wide range of mobile phones, networks and tariffs to choose from, our staff are keen to understand your mobile phone needs to ensure that they find the right deal for you.

Caudwell's strong growth had already caught the attention of the British media, as the company's revenues neared £300 million by the end of 1997. In 1998, John Caudwell was named as number three in Enterprise magazine's ranking of the United Kingdom's top 100 entrepreneurs. Just one year later, Caudwell's business empire already neared revenues of £600 million, and by the end of 2000, the company's turnover reached £1 billion. With 14 subsidiaries operating in eight countries, the company was also ranked as Europe's leading privately owned mobile phone group.

FOCUS ON RETAIL IN 2006

Yet, while Caudwell focused on building up its diversified operations, its Phones 4u retail operation appeared to have been left by the wayside. Into the beginning of the 2000s, the United Kingdom's mobile telephone retail sector had changed dramatically, as a small number of large-scale groups emerged, led by Carphone Warehouse. With just 60 stores at the beginning of the decade, Phones 4u seemed an unlikely candidate to survive in the increasingly competitive and rapidly consolidating sector.

Caudwell drafted a new, and highly aggressive, strategy for securing Phones 4u's position. By the end of 2000, the company had launched a £50 million investment program, with plans to add more than 200 stores in England and Wales in just one year. The company also launched a drive in to Scotland, where it opened the first of a planned 25 stores. The company also invested heavily into new advertising campaigns, and raised eyebrows when it launched a graduate recruitment program promising starting salaries of £60,000 per year. Another company stunt involved John Caudwell's promise to give £1 million to each of the company's 25 senior managers, and another £10 million to be divided among the group's 400 sales and store managers, if the company reached its sales targets. This type of incentive soon earned the company a somewhat dubious reputation for its highly aggressive sales tactics.

Caudwell's business interests increasingly focused on his retail holdings into the middle of the first decade of the twenty-first century. These included a failed attempt to expand into the toys and gadget market, with the acquisition of struggling retail group The Discovery Store in 2001. That 60-store operation was shut down in 2005. Yet Phones 4u itself was thriving, as its store network topped the 300 mark. The fast growth of the retail chain had also helped transform the company's turnover, which neared £2 billion by 2003.

With a determination to outpace rival Carphone Warehouse, Caudwell began to streamline its range of operations, selling Singlepoint to Vodafone for £405 million in 2003. The company's nonretail operations were then regrouped under its 20:20 Logistics subsidiary, which became the company's counterpoint to its fast-growing Phones 4u retail business.

Into the mid-first decade of the 2000s, Phones 4u began a new effort to win the hearts and minds of U.K. consumers. The company invested some £10 million in the establishment of a sales academy, through which the company hoped to transform its sales focus from that of merely winning contracts to what Caudwell called "customer excellence." While greeted with some degree of skepticism, given the group's highly aggressive sales reputation, the initiative appeared to take hold. By the end of 2005, Phones 4u had successfully boosted its customer service ratings from last place (among independent retailers) to first place.

KEY DATES

1987:: Used car salesman John Caudwell becomes dealer for Motorola mobile telephone handsets, forming Midland Mobile Phone in Stoke-on-Trent.
1989:: With sales approaching £5 million, Caudwell launches mobile telephone wholesaling (later 20:20 Logistics) and accessories (later Dextra) operations.
1994:: Company is renamed Caudwell Communications and re-brands its retail mobile phone operations as Phones 4u.
1996:: Company launches the Mobile Phone Repair Company, and first international operations in the Netherlands.
1997:: Caudwell enters airtime services and sales with Caudwell Airtime (later Singlepoint).
2000:: With sales topping £1 billion, Caudwell begins Phone 4u expansion, with plans to open 200 new stores.
2003:: Caudwell sells Singlepoint for £405 million as part of refocus on retail and logistics operations.
2006:: John Caudwell breaks up the Caudwell Group, selling 20:20 Logistics to Doughty Hansen and Phones 4u to Providence Equity Partners, for a total of £1.3 billion.

By then, too, John Caudwell had announced his intention to sell the business he and his brother had founded in order to concentrate his energy on his various charitable interests. That process lasted into 2006; finally, in September 2006, Caudwell announced that he had agreed to break up and sell the company to two private equity firms for a total of £1.3 billion. Under terms of the agreement, Doughty Hanson acquired the 20:20 Logistics division, including the Dextra and MPRC operations, while Providence Equity Partners took control of the Phones 4u operation. As part of the sales terms, Caudwell agreed to loan the company £200 million, with repayments tagged to future company performance targets, a move that was seen as a means to encourage Caudwell to continue to maintain an active interest in the company's growth.

With new owners, Phones 4u continued its ambitious growth objectives, opening its 400th store in December 2006. The company also began seeking to boost its range of products and services available at its store, developing new mobile telephone content initiatives, while also seeking to expand its product assortment to include other high-tech products, such as video game consoles. At the beginning of 2007, Phones 4u also appeared ready to challenge rival Carphone Warehouse, and the rest of the mobile telephone market, with the rollout of its own broadband services. Phones 4u had emerged from the Caudwell Group as one of the United Kingdom's most dynamic mobile telephone market players.

M. L. Cohen