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Caudwell jackpot is a bet that mobile networks can't stop infighting

You scratch my eyes out, I'll scratch yours

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Comment The astonishingly high price put on Phones4U by the equity capital community is a cynical bet on the disorganisation of the mobile networks.

One straw blowing in the wind: a complaint back in June from the Digital Evangelist - an industry insider, who had been pestered by phone retailers to "upgrade his handset".

This high power consultant has been campaigning steadily against the abuse of privacy which sees him, his friends and family, constantly called by people claiming to be "Orange Upgrade Centre" or some other network name, but who are in fact taking advantage of the "churn incentives" the networks offer retailers.

The deals are, superficially, irresistible. In fact, they are whatever phone the retailer has, which would normally be skipware; and the contract is rarely as good as the one the subscriber already has. But good salesmanship can see people abandoning very good contracts with nice phones, and getting an obsolete handset, and paying far more.

The networks lose out; most of the profit from this goes to the retailer.

As Digital Evangelist says: "The economics of the mobile market are flawed and at present not likely to change. The networks are starting to remove some of the distributors whose actions are too aggressive, but these people still have their own customer lists who they are prepared to churn to another network. The need to keep customer numbers up rather than grow margins means that the offer of a few thousand new ones is too much to reject."

In theory, the networks could stifle this business tomorrow, by stopping the practice of paying retailers to recruit new subscribers.

In practice, the networks are all addicted. They can't stop buying new accounts until their rivals do. And until they all form what would, really, be a cartel, nobody will break ranks.

What the equity capital people are saying is that they are betting on this chaotic situation continuing, and for huge profits to be available on a parasitic level, as the networks scratch great gobs of each other's flesh off in the attempt to be biggest.

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