“The UK mobile telecommunications market is one of the biggest in Europe. All of the European operators have shown an interest in participating. By way of comparison, in the United States there are three MNOs competing for a market of 300 million customers, whereas in the UK, there are four MNOs competing for a market of 60 million customers. Notably, the UK has more MVNOs than other markets around the world. Also, the UK has historically had a strong indirect sales presence, whereas in other markets, MNOs typically sell directly to customers, generally do not distribute through any indirect sales channels, and therefore do not have to share value with third party sellers. As a consequence of all of this, customers in the UK have benefitted; they have more choice and that choice has driven competition. That is, competition for the customer relationship for connectivity. The UK has one of the lowest costs of connectivity in the world.”
“Phones 4u have unique access to volume at the 16-24 segment.”
“P4U's marketing strategy was skewed towards young adults, and they were quite pioneering in digital marketing and social media, so tended to attract younger, high-spending customers.”
“Two common (and related) errors are to suppose: (1) that the stronger and more vivid is our feeling or experience of recollection, the more likely the recollection is to be accurate; and (2) that the more confident another person is in their recollection, the more likely their recollection is to be accurate.”
“… the best approach for a judge to adopt in the trial of a commercial case is, in my view, to place little if any reliance at all on witnesses' recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts. This does not mean that oral testimony serves no useful purpose – though its utility is often disproportionate to its length. But its value lies largely, as I see it, in the opportunity which cross-examination affords to subject the documentary record to critical scrutiny and to gauge the personality, motivations and working practices of a witness, rather than in testimony of what the witness recalls of particular conversations and events. Above all, it is important to avoid the fallacy of supposing that, because a witness has confidence in his or her recollection and is honest, evidence based on that recollection provides any reliable guide to the truth.”
“50. … it is important to bear in mind that there may be situations in which the approach advocated in Gestmin will not be open to a judge, or, even if it is, will be of limited assistance. There may simply be no, or no relevant, contemporaneous documents, and, even if there are, the documents themselves may be ambivalent or otherwise insufficiently helpful. … Even in a case which is fairly document-heavy (as this one was) there may be critical events or conversations which are completely undocumented. The CarbonDesk dinner is a good example. Whilst there are documents from which inferences might be drawn about what was or was not said at that dinner, there are no notes of the discussions and no memoranda or emails sent afterwards which appear on their face to record or report what was said on that occasion. 51. Faced with documentary lacunae of this nature, the judge has little choice but to fall back on considerations such as the overall plausibility of the evidence; the consistency or inconsistency of the behaviour of the witness and other individuals with the witness's version of events; supporting or adverse inferences to be drawn from other documents; and the judge's assessment of the witness's credibility, including his or her impression of how they performed in the witness box, especially when their version of events was challenged in cross-examination. Provided that the judge is alive to the dangers of honest but mistaken reconstruction of events, and factors in the passage of time when making his or her assessment of a witness by reference to those matters, in a case of that nature it will rarely be appropriate for an appellate court to second-guess that assessment.”
“It is frequently very difficult to tell whether a witness is telling the truth or not; and where there is a conflict of evidence such as there was in the present case, reference to the objective facts and documents, to the witnesses' motives, and to the overall probabilities, can be of very great assistance to a judge in ascertaining the truth.”
“So far as possible, tribunals should be free to draw, or to decline to draw, inferences from the facts of the case before them using their common sense without the need to consult law books when doing so. Whether any positive significance should be attached to the fact that a person has not given evidence depends entirely on the context and particular circumstances. Relevant considerations will naturally include such matters as whether the witness was available to give evidence, what relevant evidence it is reasonable to expect that the witness would have been able to give, what other relevant evidence there was bearing on the point(s) on which the witness could potentially have given relevant evidence, and the significance of those points in the context of the case as a whole. All these matters are inter-related and how these and any other relevant considerations should be assessed cannot be encapsulated in a set of legal rules.”
“Please confirm by return that Telefónica has taken all reasonable steps to preserve documents which are relevant to the matters raised in this letter before claim.”
“… Tef SA was of the view that the Claimant's claim was unmeritorious and that, therefore, it was unnecessary and disproportionate to spend management time and incur business costs in order to preserve documents in respect of a claim that would not withstand scrutiny. Tef SA considered it highly unlikely that a claim would be issued, which view was sustained by the fact that over three and a half years elapsed between the date of the letter before action and the commencement of proceedings”
“… each Defendant undertaking was, and/or it is to be inferred was, party to an agreement and/or decision[ The inclusion of the words “and/or decision” appears an irrelevant reference to the statutory concept ofa decision of an association of undertakings, which does not in fact form any part of P4u’s case. ] and/or concerted practice which had the object or effect of preventing and/or restricting and/or distorting competition in the market for Connections in the UK. In particular, each Defendant undertaking was party to direct or indirect contact(s), the object or effect of which was to influence the conduct on the market of each of the other Defendant undertakings as actual or potential competitors, or to disclose to each of the other Defendant undertakings the course of conduct on which each Defendant undertaking had decided to adopt or was contemplating adopting on the market for Connections in the UK. The object and/or effect of such contact and communication was the restriction of competition in the UK.”
“(a) Unlawfully colluded with and/or made unlawful commitments to Vodafone Group that prevented renewal of the O2 Agreement. P4U is unable to identify the precise content of the commitments but avers that such commitments must logically have involved one or more of the following elements: (i) A commitment to cease or reduce supplies to P4U (alternatively, supplies to both or at least one of P4U and CPW). (ii) A commitment not to extend, renew or replace O2’s commercial relationship with P4U (alternatively, with both or at least one of P4U and CPW). (iii) A commitment to move towards supplying at most one of P4U and CPW. (iv) A commitment to reduce or eliminate O2’s reliance on retail intermediaries in the UK. (b) Unlawfully disclosed to Vodafone Group their future intentions in relation to one or more of the following aspects of their commercial conduct on the market (in competition with Vodafone Group): (i) The extension, renewal or replacement of O2’s commercial relationship with P4U. (ii) The extension, renewal or replacement of O2’s commercial relationship with retail intermediaries in the UK generally and/or P4U and/or CPW specifically. (iii) The choice between trading with both or only one of the major retail intermediaries in the UK (i.e. P4U and CPW). (iv) The reduction or elimination of reliance on retail intermediaries in the UK.” (i) A commitment to cease or reduce supplies to P4U (alternatively, supplies to both or at least one of P4U and CPW). (ii) A commitment not to extend, renew or replace O2’s commercial relationship with P4U (alternatively, with both or at least one of P4U and CPW). (iii) A commitment to move towards supplying at most one of P4U and CPW. (iv) A commitment to reduce or eliminate O2’s reliance on retail intermediaries in the UK. (i) The extension, renewal or replacement of O2’s commercial relationship with P4U. (ii) The extension, renewal or replacement of O2’s commercial relationship with retail intermediaries in the UK generally and/or P4U and/or CPW specifically. (iii) The choice between trading with both or only one of the major retail intermediaries in the UK (i.e. P4U and CPW). (iv) The reduction or elimination of reliance on retail intermediaries in the UK.”
“… it is to be inferred that at a date unknown to P4U but before27 January 2014 (and, it is to be inferred, on or around19 September 2012 ), Vodafone Group and/or Vodafone UK also gave to Telefónica and/or Telefónica Europe and/or O2 unlawful commitments and/or disclosure of confidential and commercially sensitive information as to its intended commercial policy in relation to some or all of the same subject matter as to the commitments and/or disclosures identified in paragraph 131 above.”
“… it is to be inferred that, in 2014, Vodafone UK and/or Vodafone Group coordinated, with EE and/or [DT] and/or Orange, their decisions to discontinue their relationships with P4U, and in that respect disclosed to one another confidential and commercially sensitive information as to their intended commercial policy in relation to some or all of the same subject matter as the disclosures identified in paragraph 131 above, mutatis mutandis.”
“The following shall be prohibited as incompatible with the internal market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market,…”
“i) The object of the inclusion of concerted practices in the prohibition is to bring within Article [101] a form of coordination between undertakings which, short of the conclusion of an agreement properly so-called, knowingly substitutes practical co-operation between the undertakings for the risks of competition. A concerted practice does not have all the elements of an agreement but may arise out of co-ordination which becomes apparent from the behaviour of the participants. Parallel behaviour may amount to strong evidence of a concerted practice if it leads to conditions of competition which do not correspond to the normal conditions of the market: ICI v Commission [1972] ECR 619 (“Dyestuffs”). ii) The requirement of independent determination of policy on the market on the part of competitors strictly precludes any direct or indirect contacts between competing undertakings, the object or effect of which is either to influence the conduct on the market of an actual or potential competitor or to disclose to such a competitor the course of conduct which the undertaking has decided to adopt or contemplates adopting on the market: Suiker Unie v Commission [1975] ECR 1663. iii) The prohibition on concerted practices applies to all collusion between undertakings whatever the form it takes. An agreement arises from the expression by the participating undertakings of their joint intention to conduct themselves in a specific way. Concerted practices include forms of collusion having the same nature as agreements which are distinguishable from agreements by their intensity and the forms in which they manifest themselves: Commission v Anic Partecipazioni[1999] ECR I-4125 . iv) A decision on the part of a manufacturer which constitutes unilateral conduct of that undertaking escapes the Chapter I prohibition (though if the undertaking has a dominant position, it might be caught by the Chapter II prohibition). The concept of an agreement centres around the existence of a concurrence of wills between at least two parties, the form in which it is manifested being unimportant so long as it constitutes the faithful expression of the parties’ intention: Bayer v Commission[2000] ECR II-3383 , upheld by the European Court of Justice, Joined Cases C-2 and 3/01P,6 January 2004 . v) Although the concept of a concerted practice implies the existence of reciprocal contacts, that requirement may be met where one competitor discloses its future intentions or conduct on the market to another when the latter requests it or, at the very least, accepts it: Cimenteries v Commission[2000] ECR II-491 . vi) The fact that only one of a number of competing undertakings present at a meeting reveals its intentions is not sufficient to exclude the possibility of an agreement or concerted practice: Tate & Lyle v Commission[2001] ECR II-2035 .”
“a form of coordination between undertakings, which, without having been taken to the stage where an agreement properly so-called has been concluded, knowingly substitutes for the risks of competition, practical cooperation between them which leads to conditions of competition which do not correspond to the normal conditions of the market, having regard to the nature of the products, the importance and number of the undertakings as well as the size and nature of the said market.”
“The criteria of coordination and cooperation laid down by the case-law of the Court, which in no way require the working out of an actual plan, must be understood in the light of the concept inherent in the provisions of the Treaty relating to competition that each economic operator must determine independently the policy which he intends to adopt on the common market including the choice of the persons and undertakings to which he makes offers or sells.”
“subject to proof to the contrary, which it is for the economic operators to adduce, there must be a presumption that undertakings participating in concerting arrangements and remaining active on the market take account of the information exchanged with their competitors when determining their conduct on the market, particularly when they concert together on a regular basis over a long period” (para 121). This is sometimes referred to as the “Anic presumption.”
“60. … the number, frequency, and form of meetings between competitors needed to concert their market conduct depend on both the subject matter of that concerted action and the particular market conditions. If the undertakings concerned establish a cartel with a complex system of concerted actions in relation to a multiplicity of aspects of their market conduct, regular meetings over a long period may be necessary. If, on the other hand, as in the main proceedings, the objective of the exercise is only to concert action on a selective basis in relation to a one-off alteration in market conduct with reference simply to one parameter of competition, a single meeting between competitors may constitute a sufficient basis on which to implement the anti-competitive object which the participating undertakings aim to achieve. 61. In those circumstances, what matters is not so much the number of meetings held between the participating undertakings as whether the meeting or meetings which took place afforded them the opportunity to take account of the information exchanged with their competitors in order to determine their conduct on the market in question and knowingly substitute practical co-operation between them for the risks of competition. Where it can be established that such undertakings successfully concerted with one another and remained active on the market, they may justifiably be called on to adduce evidence that that concerted action did not have any effect on their conduct on the market in question.”
“It is thus apparent from the case law that the provision of sensitive business information, such as the exchange of information regarding pricing, including future pricing, and information regarding supply and demand, including in relation to future supply and demand (in particular production volumes or increases or decreases in shipments), makes it possible to reduce uncertainty as to the conduct of competitors on the market and to create conditions of competition which do not correspond to the normal conditions of the market and, consequently, gives rise to a concerted practice having as its object the restriction of competition, within the meaning of art.101(1) TFEU.”
“55. Since the prohibition on participating in anti-competitive agreements and the penalties which offenders may incur are well known, it is normal for the activities which those practices and those agreements entail to take place in a clandestine fashion, for meetings to be held in secret, most frequently in a non-member country, and for the associated documentation to be reduced to a minimum. 56. Even if the Commission discovers evidence explicitly showing unlawful contact between traders, such as the minutes of a meeting, it will normally be only fragmentary and sparse, so that it is often necessary to reconstitute certain details by deduction. 57. In most cases, the existence of an anti-competitive practice or agreement must be inferred from a number of coincidences and indicia which, taken together, may in the absence of another plausible explanation, constitute evidence of an infringement of the competition rules.”
“36. … it must be recalled that, according to the case law of the Court, in most cases the existence of a concerted practice or an agreement must be inferred from a number of coincidences and indicia which, taken together, may, in the absence of another plausible explanation, constitute evidence of an infringement of the competition rules (see, to that effect, judgment in Total Marketing Services SA v European Commission (C-634/13 P) EU:C:2015:614 at para 26 and the case law cited). 37. Consequently, the principle of effectiveness requires that an infringement of EU competition law may be proven not only by direct evidence, but also through indicia, provided that they are objective and consistent.”
“Avoid. Always speak to Legal. A lawyer may need to attend.”
“Afterwards: Do keep an accurate record.”
“In all regions in which competitors are present, minutes should be drawn up outlining the discussions held. In this way, what takes place at the meeting is duly recorded for future consultation, avoiding undue speculation over what had been discussed…. Do not forget that a lack of rigour in recording information or meetings in documents may give rise to significant risks for Telefónica, even in the absence of any infringement of the law.”
“Every meeting which I have had [with a competitor] were, you know, pre-discussed or was, let’s say, planned: there was a topic behind that. Sometimes it might have not been, you know, exactly documented, but most of the topics were following a clear agenda, pre-discussed, and then discussing the topic in that group.”
“… we’re both senior people and we know what we can and cannot discuss with competitors. So he was a very serious man and I take things very seriously so I wouldn’t have conversations lightly.” 120. Mr Humm for his part said that he felt comfortable addressing different topics without, in effect, trespassing into any competition law issues. He said, when asked in respect of another conversation with a competitor why no attempt was made to specify what would be discussed: “… typically the people I interacted with knew what was and what was not allowed to be said.”
“direct channels delivered significantly higher value than indirect channels, but Vodafone UK did lower numbers of sales in direct channels.”
“… the distribution model in the UK was substantially different from other markets in which Telefónica operated. The Spanish model of distribution (and that which was very largely replicated in the markets of its other subsidiaries) was almost exclusively direct sales with very little, if any, role for indirect distributors and/or no handset subsidies. As a result, the margin achieved by Tef SA and its other subsidiaries was significantly higher than the margin TUK could achieve in the UK market, where (as noted above) indirect channels played a substantial role in the distribution model. This was because Tef SA and its subsidiaries in other markets did not have to make substantial commission payments to indirect channels, whereas TUK did, which had a significant impact on its profitability.”
“… the worst possible thing to happen to a network is to be commoditised. So if we’re – if people view network connectivity like they view water or gas, it becomes very difficult to differentiate and build customer brand loyalty and customer lifetime value.”
“Due to [the indirect retailers’] size of share they create a “prisoner’s dilemma” for MNOs meaning any unilateral move carries a high degree of risk, hence a lack of structural change in recent times”
“• Choices do not exist today — Create over next 24mths • Customers choose Indirects for reach, brand, choice and perception of independence • They will always be part of O2's mix as long as customers choose to shop with them and the economic return is optimised for O2• We need Indirects today! They deliver 40% of our new business in Pay Monthly”
“1. Direct is still our first choice every time, we need to maximise every opportunity for acquisition 2. Accept Indirect is part of the industry mix, there will always be customers who chose to shop in the indirect channel, but choose profitable partners and seek over time to reduce volumes going to CPW & P4U in particular 3. Any additional distribution we create must be cost-effective and flexible and we will look for ways to optimise existing distribution against these criteria”
“The business was going backwards from a revenue and profitability perspective and, clearly, O2 was not as relevant in the market as it needed to be. We needed to make significant changes to the operation of the business in order to increase O2's relevance in the market and to increase TUK's profitability.”
“1. Can we agree the proposal? No, as it would be heavily loss making business a. O2's gross profit is around 70% as for every£10 we bill the customer we incur around£3 of Interconnect costs. P4U propose paying them 80% of New customer billed revenues (70% for Upgrade customers) so at a high level we would lose money. As we then went down the P&L and incurred costs for Voice and Network, the loss would further increase b. Broadly speaking P4U customers currently make us£100 as do CPW. The proposal would turn this profit into a very rough£100 loss per customer. c. Finally compared to our latest "market rate deal" agreed recently with CPW, the deal looks expensive. We pay CPW£85 at point of connection and then 50% revenue share. If you move the£85 fixed amount into the revenue share the outcome would be broadly 60%. P4U are asking for 80% for New…….. 2. We need to be in P4U as they provide access to a unique customer segment and are likely to become the no.1 Indirect player medium term. So what is our counter proposal? The CPW deal "streamlined" is a reasonable response and would pay slightly more than current deal a. So our counter proposal tomorrow should be£85 fixed fee plus 50% revenue share over life of contract i. CPW enjoy revenue shares after customer contract 24m term expires AND the right to Upgrade data. Neither of these elements would be offered to P4U. We would improve upon the opening£85 + 50% to reflect these benefits if discussions are entered into so outcome maybe say£100 + 55% revenue share b. We wish to pay slightly more than now as we recognise P4U are committing to give us a higher market share and we wish to stay at the deal table c. Profit if this deal is agreed would be c.£60 per customer and over multiple customer cycles be broadly equal to CPW 3. What happens if the counter proposal is rejected out of hand? This would mean we would lose a large amount of the 240k Gross delivered by P4U so we would supercharge other channels to protect our overall market share a. Accept a low level of P4U share — say 10%. +100k b. + Invest in Direct operations such as O2 Retail Franchise stores, O2 Online and O2 Retail stores. +50k c. + Increase market share purchased in CPW from say 25% to 30%. +50k d. + Do a deal with Other partners such as Al Comm's. +50k e. In event any of these options don't deliver to required level, purchase of up to 100k via Tesco would be a (painful) fall back option” a. So our counter proposal tomorrow should be£85 fixed fee plus 50% revenue share over life of contract i. CPW enjoy revenue shares after customer contract 24m term expires AND the right to Upgrade data. Neither of these elements would be offered to P4U. We would improve upon the opening£85 + 50% to reflect these benefits if discussions are entered into so outcome maybe say£100 + 55% revenue share b. We wish to pay slightly more than now as we recognise P4U are committing to give us a higher market share and we wish to stay at the deal table c. Profit if this deal is agreed would be c.£60 per customer and over multiple customer cycles be broadly equal to CPW a. Accept a low level of P4U share — say 10%. +100k b. + Invest in Direct operations such as O2 Retail Franchise stores, O2 Online and O2 Retail stores. +50k c. + Increase market share purchased in CPW from say 25% to 30%. +50k d. + Do a deal with Other partners such as Al Comm's. +50k e. In event any of these options don't deliver to required level, purchase of up to 100k via Tesco would be a (painful) fall back option”
“Although you can not at this stage agree with the proposal we sent across yesterday as more work is needed we have agreed the following: O2 are looking for a deal that reflects their natural market share (30 %) Both parties will put whatever resource required to get to an agreement within the next two weeks On value we agree that the base value is that paid for the deferred deal in place for the first half of 2012. O2 recognize that an increment is required to get to the volume/value required. P4u recognize that approval from Telefónica will take longer although it is targeted to achieve this during July.”
“I confirm we are looking to conclude a deal to secure our natural market share, on terms consistent with a) both sides making an appropriate return, b) maintaining (and growing) the value of the market and c) giving you value consistent with our current contract (i.e. a deal not predicated on improving our value just at your expense). We are open to reflect volume / value mix opportunities in the value share / market share in the agreement. In that context we are committed to driving to agreement between the teams in the next 2 weeks so that a deal with a UK board recommendation can be table [sic] in Madrid during July in line with the formal authorisation process.”
“I cannot now recall whether my reference in that email to requiring formal authorisation from Madrid was an explanation of our governance model or a negotiating tactic. In fact, both explanations hold true. I did not have delegated authority to sign any renewal contract, as the contract value quantum would have been above the limit of my authority. At the same time, in these situations, the pressure would have been different if P4U believed the local team had absolute authority versus thinking that we still needed authority from Madrid. I would have used this sort of positioning in order to retain flexibility.”
“• O2 potentially approaches a critical point in the evolution of the consumer marketplace, with risks coming from new sources such as LTE driven change and customer handset subsidy reductions. These risks are exacerbated by pressure on customers revenues, fierce MNO competition and increasing economic influence of key handset providers We have multiple options available to mitigate these market risks such as securing market share with key Indirect partners such as Phones 4u over the medium term, exiting from one (or more) Indirect partners to encourage wider market changes or attempting to extend existing contracts to address specific key market risks such as LTE [i.e. 4G]” 143. The slides outlined the key elements of the proposed new deal, stating: “This new deal gives T.UK and Phones 4u stronger risk alignment vs. today and meets medium term requirements against the intense market pressures we are expecting to face including LTE and customer revenue declines • Revenue share aligns both parties in keeping customers longer and growing spend • Customer Handset investment share means both benefit from reductions in customer subsidy encouraging strategic market value improvement”
“… we should try and break the model from a position of strength but we are not there now = deal”
“- they believe execution risk in current plan too high for the proposed outcome - they believe the strategy (we and others adopt) is flawed and is a big factor in the declining market - they want a plan to break the downward spiral in the market and believe, despite past experience, that others will follow.”
“Based on the sentiment yesterday, the following are components:- - differentiating retention from acquisition - changing direct / indirect mix - ability to raise prices across the board - handset accounting and handset financing” 147. As Mr Dunne expressed it in his evidence: “Spain had thrown [the draft 3 Year Plan] out and said you need to think again, you are not being bold enough in the decisions you are making.”
“I believe that at the time the profitability of the UK market made other MNOs more willing to potentially take the risk, and −− and we thought that the profitability for them of the indirect channel would probably be also low, as it was for us. Therefore, the incentive for them to follow was bigger, and the risk for us [if] we could move volume to these new channels was lower. So it’s not that I was thinking this is definitely going to work, but the balance between the risk and the −− and the value may be worth it.”
“Game Changing Options: • We've assessed 2 bold commercial moves: Distribution change and a major Price increase/Subsidy removal • For distribution, we've been able to clarify the implications for 2013 and beyond. Despite the lack of a positive short-term financial benefit we remain confident that distribution is an area to address strategically • For pricing/subsidy, we've reviewed the option of further price increases although must be mindful that competitors have shown no sign of following our strategy. In fact quite the reverse”
“Even when market follows there isn’t a significant financial benefit in the short-term. However we remain focussed that Distribution must be addressed strategically”
“• A distribution shift would be financially negligible in 2013 but does have strategic benefit in subsequent years • A major price increase/subsidy removal would represent a significant financial opportunity in the short-term but would jeopardise TUK in the long-term • We therefore recommend to implement the handset financing proposition and consider the Indirect Distribution move”
“1) A need to demonstrate ambition to Group [i.e. Telefónica Europe / Telefónica SA] that we will change the market 2) Realistically the conditions are not present in … our market place for the industry or individual operators to coerce change in the indirect market. In addition we have a poor track record as an industry in the UK and recent events in Spain has shown that success is hard to achieve across the market. 3) Pragmatically we still need strong distribution in the short term as we face a challenging 12-18 months given our position on LTE. A heroic withdrawal from the indirect market would damage our business in the short term.”
“Distribution game changers”
“O2 UK strategy – is volume required if handset solution successful? Likelihood other operators will follow.”
“To make any strategic move in the indirect channel viable there must exist certain conditions... 1. We must have financial strength as a company 2. There must exist an economic need in the market place that would incentivise other operators to follow 3. To avoid negative share implications other MNO's must pursue the same strategy 4. The option needs to be economically viable with full understanding of short term effects on trading positions 5. We need to have a unique and compelling proposition that truly differentiates from [sic] our competitors”
“1) Agreement from the Board not to renew our gross connections contract with P4U when it expires31 January 2013 2) Agreement to continue to trade with P4U on upgrades as per the existing contract until January 2014 3) Above actions subject to the degree of confidence to find substitute volumes to cover a significant amount of the 200k gross shortfall resulting from the above decision”
“… how we intend to address the volume currently delivered through P4U and how critical the proposed Handset Solution is within this (to drive consistent and attractive Direct offers)”
“The above to be used to ensure the region is fully aware of our current position and engaged/supportive of any final decision we take”
“One issue which I don’t wish to lose sight of is that this is currently a unilateral move – presumably the Region can guide us as to whether there is a broader appetite for change?”
“Game Changing Indirect Distribution”
“Due to [the indirects’] size of market share, any unilateral moves by MNOs carry a degree of risk, hence the lack of structural change in recent times”
“Due to [the indirects’] size of market share they create a ‘prisoner’s dilemma’ for MNOs meaning any unilateral move carries a high degree of risk, hence the lack of structural change in recent times”
“Phones 4u have been historically important to T.UK but we can exit and replace their volume”, suggesting how this would be done through a combination of sales through CPW, A1 Comms, and, to the largest extent, an increase in direct sales which the presentation claimed would be achieved through Project Refresh and “channel trading efficiencies”
“Now is the right time to exit Phones 4U It’s fundamentally the right thing to do and the timing is right given potential market changing trigger points in the next 2 years…”
“It is the first step in effecting long-term market change Externally • Bold step ahead of potential competitor contract break points and LTE launches • Create instability in Indirect space • Allow great commercial negotiation with other Indirects Internally • Build direct trading capability across 2013 in preparation for a further step up in direct mix in 2014 • Force focus on direct channel trading capability • Focus on long-term profitability” • Bold step ahead of potential competitor contract break points and LTE launches • Create instability in Indirect space • Allow great commercial negotiation with other Indirects • Build direct trading capability across 2013 in preparation for a further step up in direct mix in 2014 • Force focus on direct channel trading capability • Focus on long-term profitability”
“Confidence is high that we can find c 150k out of 200k P4u shortfall”
“We recognise that these represent a reduction from the existing agreement although would bring P4u closer into line with other distribution channels we use. As I'm sure you're aware we have already bypassed the time by which a contract extension was due to be completed. The Telefónica Group approved our revised distribution plans recognising that we failed to achieve mutually acceptable terms for extending our relationship with you. The UK 2013 Budget will be finally approved in Madrid on Wednesday 12th with the Chairman. If you decide these terms are acceptable to you, we would need to seek Group approval to amend accordingly. If the terms are unacceptable, I suggest we recognise that we're not able to find a mutually acceptable solution. Hope this provides the clarity you were looking for.”
“Based on the numbers I have this proposal would produce a G[ross] P[rofit] per connection of£40 and as a result it [sic] something that we cannot accept. This amount would not pay for the variable costs in store.”
“… I think there is a real danger that loose language, coupled with aggressive poaching communications, means that your organisation is not living up to the spirit, or even the letter, of our agreement.”
“To the best of my recollection, Mr Dunne explained his concern that because EE would be launching 4G well in advance of O2 and the other MNOs, EE had the power to determine the price premium for 4G across the market. If we priced 4G aggressively, the other MNOs would have to follow suit, or else they would struggle to make any impact on the market because they would always lose out on price. Mr Dunne was worried that if EE offered 4G at a small premium, this would result in the cannibalisation of the 3G market. 4G was a far superior product, and if it only cost customers a small amount extra (e.g.£5 per month), a significant proportion of 3G customers would want to upgrade to 4G (and, therefore, at that time, move to EE).”
“… I was nervous because it −− it felt like that it −− it wasn’t −− it was not okay. And secondly, I was nervous, as I said before, because I wasn’t really sure about what he wanted, what the details was. And I wasn’t really sure about, you know, if −− if this was inappropriate or appropriate.”
“At the lunch with Ronan Dunne (RD), RD raised a concern about value in the market, and concerns about the pricing strategy behind 4G. He was keen to emphasise that the opportunity of 4G was to establish a pricing structure that recognised its enhanced value. He raised a difficult scenario whereby discounting on 3G by other competitors and/or retail channels could lead quickly to a reassessment of that premium pricing in order to respond, and that would devalue the market. He believed the risk of this was particularly acute with the indirect channels, for example Carphone Warehouse, and that an excess of supply in the distribution market contributed to that risk. He appeared to suggest, you believe, that such discounting could be de-risked if that excess of supply was dealt with in some way. RD talked about making some "unilateral steps", and talked about playing some "big cards". Your concern was that the implication of that might have been to suggest they were willing to pull some volume from the indirect channels with a view to protecting that value, but wanted to de-risk that volume being taken up by EE. While you found the discussion surprising, you believe you were careful not to respond on those points, other than to talk in general about your public strategy for EE, to increase market share and to grow your business. You have said to the extent that you understood what he was trying to say, which at the time was difficult to piece together, you did not agree with any of his suggestions or take up the point in any way so as to suggest agreement or acceptance of any proposals.”
“Good to see you last week, as far as I can recall the only outstanding action was for me to talk to my regulatory team about a possible retail / distribution "Oscar", or some other form of ownership in that indirect distribution space, see whether they think that would be possible and what that would look like from a competition law perspective. The initial reaction was that there would be significant regulatory/competition law hurdles to that, but that if they understood in more detail what was being proposed then they can take it away and come back with a more considered response. Not sure how you want to do that, whether you could send us something in writing (if your regulatory team was comfortable with that), or otherwise set up a meeting with the relevant parties (I would guess with some of the regulatory lawyers as well). Let me know how you want to take that forward.”
“Thanks for your note. Leave it with me for a few days and I will pull together some proposed [n]ext steps.”
“Good luck for your launch and thanks for your contribution in these past 4 weeks. When you have fully announced your launch plan etc. I suggest we catch up for a coffee to follow up our lunch”
“Mr Laurence explained that he understood that EE was proposing to charge a£5 per month premium for 4G, and that he believed a£10 per month premium was more appropriate. My assumption, although I do not recall that Mr Laurence said this explicitly, was that he had the same concerns as Mr Dunne, namely that if EE led the way with an aggressively priced 4G product, that would exert downwards pressure on the 3G market, and may also undermine the other MNOs plans to launch 4G at a higher price point in the future.”
“From what I can recall, Mr Dunne was concerned that Apple was taking advantage of its position in the market to exert pressure on the MNOs to accept unreasonably restrictive terms. His view was that one way to address this issue was for the MNOs to coordinate and use their collective bargaining power in some way to redress the balance between Apple and the individual MNOs. I was immediately concerned that, again, what Mr Dunne was trying to discuss, and what he appeared to be proposing, was not appropriate. I recall that I told him specifically that I was not comfortable to discuss EE's negotiations with Apple, and that I tried to move the conversation onto another topic as quickly as possible. I remember feeling really annoyed that Mr Dunne was trying to have this sort of conversation with me again. It was unbelievable….”
“(a) Mr Dunne explained that he was "wanting to build price sustainability" and that Apple was a "key part of that", but he wanted to explore ways in which the MNOs could "try to restrict the market impact of Apple in saturated markets"; (b) Mr Dunne said that he was sharing this view with Mr Swantee and Mr Laurence to form a "broad view" across the "big operators" about the need to "rebalance [the] influence of that one handset manufacturer [Apple] in the market overall"; and (c) Mr Swantee explained that he was "uncomfortable to talk about it", and that EE "don't want to comment on [the] contract with Apple" .”
“local or group negotiated”
“I have said that in broad terms these conversations raise the prospect of collusion, and anti-competitive agreements between you, which is extremely serious. While you have made it clear you have no intention of taking direction from these conversations, nor did you believe you gave or implied any complicity or agreement to those propositions, and indeed that you purposely avoided any impression that you were open to coordination of behaviour, we have since considered whether you should have taken further steps to rebut those proposals, and whether we should now do so, informally or formally. The options we discussed were; (a) An informal conversation with all parties, to express your concerns in retrospect at the possible intentions of the communications, and to firmly rebut any notion of complicity or agreement with those proposals; (b) A more formal meeting, possibly with lawyers, to present the same feedback and clarify our position, and also warn that further dialogue or communication in that vein would inevitably force us to make a more formal disclosure to the competition authorities; or (c) A disclosure of some form directly to the competition authorities; or (d) Document these conversations, monitor their behaviour going forward, and prepare a more robust response should any such conversations occur again in the future. I have since spoken to external competition legal experts, at Slaughter & May, and in conclusion of those discussions my advice is that on the basis of the discussions as reported, it would be acceptable to adopt option (d). Option (c) would mean that we would have to make admissions to the competition authorities of unlawful behaviour, and I do not believe that is appropriate given the conversations and circumstances. Option (a) and (b) are something we could think about going forward, but the risk is that this causes a protective response from those parties, possibly even some form of whistleblowing process themselves, which would put us in a more difficult position (having not taken that initiative ourselves). Given that no indication has been given to the parties involved that we were in any way intending to follow up on their suggestions or approaches, and in fact have not done so (clearly with the published pricing this week not reflecting any agreement with those proposals), the risks of any action being warranted against you or EE for your part in those discussions is contained and moderated. To the extent that you have flagged them to me, you have adopted the right course of action, and the record of that, and our agreed plan going forward, is sufficient for the time being. I will follow up with a high level script for you to review, which can form the basis of your response for any future similar calls or meetings. I would also suggest that you avoid any scenarios where this is more likely to occur, in particular one to one meetings without other colleague involvement or legal participation.”
“Indications of intentions to encourage certain collaborative behaviours included references to actions by o2 that would otherwise be highly sensitive and confidential to the o2 business, and could only have been made to influence decisions by EE to support such actions. For example with reference to value in the distribution space, o2 was indicated to be "willing to play some big cards".”
“Be super diplomatic.”
“… as far as I can recall, the discussion was more preventative and forward-looking than it was about the past — i.e. Mr Blendis expressing his concern and reinforcing that inappropriate discussions should not happen in the future.”
“[Mr Dunne] doesn't accept he said anything that terrible but acknowledges he asked some questions & posed some scenarios and Olaf didn't respond. It won't happen again, and they appreciate the way we've dealt with it.”
“The primary purpose of this lunch meeting was to settle the dust after the spectrum dispute. I also took the opportunity, after clearing the air, to float a possible idea to improve distribution efficiency .… in the course of our conversation I explained to Mr Swantee that I thought the time could be right to consider some sort of initiative to improve the efficiency of distribution in the market. To my mind, we had an opportunity to work across the industry, as we had done with Project Oscar, and I floated this idea with Mr Swantee. I cannot recall whether or not I expressly said this to Mr Swantee during the course of the lunch but I believed that the market generally was struggling with excess distribution leading to significant inefficiencies and the launch of 4G could magnify that problem, not least because of the increased handset costs and the resultant extended contract life…. It appears Mr Swantee’s confusion and misunderstanding have stemmed from my suggestion that the timing of the launch of 4G might offer a good opportunity to consider a Project Oscar type distribution initiative.”
“Our gross connections through Indirects were very high potentially as a result of EE in dispute. Reassuring Olaf given our impending move may be helpful to strengthen the Operators resolve against the Indirects”
“… the fact that only one of the participants at the meetings in question reveals its intentions is not sufficient to exclude the possibility of an agreement or concerted practice.”
“… the argument that that exchange was not anti-competitive owing to the lack of reciprocity or the fact that the applicant itself had already decided to increase prices is not relevant. According to the case-law, an exchange of information does not have to be reciprocal for the principle of autonomous conduct on the market to be undermined. It follows from the case-law that the disclosure of sensitive information removes uncertainty as to the future conduct of a competitor and thus directly or indirectly influences the strategy of the recipient of the information ….”
“A collusive approach expressed with circumspection may well be sufficient to facilitate the substitution of practical cooperation for the risks of competition. It is a question of substance whether the information is capable of removing or reducing uncertainty and facilitating practical cooperation.”
“187. The traders did indeed discuss the composition of their portfolios and in doing so exchanged confidential information, outside of the context of a potential transaction. 188. However, contrary to what is claimed by the Commission, that institution does not establish to the requisite legal standard that that discussion gave the traders an informational advantage that may have allowed them to adjust their trading strategies as a result. 189. First, the impression that emerges from that conversation is that the HSBC trader is boasting to the Deutsche Bank trader about a good trade that he made and the latter is congratulating him. The information provided, which is neither precise nor detailed, does not make it possible to read into that conversation the explanation of a ‘strategy’ which, as it was known by the Deutsche Bank trader in isolation, placed him in such a favourable situation as against his competitors that the Commission was able to infer that the object of that conversation was to restrict competition. 190. Second, as the applicants note, without being contradicted by the Commission, the pieces of information provided by the traders on their portfolios do not cover the interest rate tenors concerned or the extent of the positions concerned. 191. In the absence of more precise information of that order, it cannot be concluded that that discussion reduced or removed the degree of uncertainty on the market in such a way that the Commission could infer therefrom an impact on the normal course of pricing components in the EIRD sector without having to examine its effects.”
“… contrary to the applicant’s assertions, that information does not constitute a general comment regarding price levels or the expression of a general rule based on experience. Even though no precise figures are given in the minutes, that information nevertheless discloses to the other participants the content of the negotiations in which NCC was engaged with its customers for the following year and its decision or intention concerning its own conduct on the European market with regard to pricing ….”
“By participating at one of those meetings, each participant knew that during the following meetings its most important competitor, the leader in the industry concerned, would reveal its future price intentions. Independently of any other reason for participating in those meetings, there was always one at least which was to eliminate in advance the uncertainty concerning the future conduct of competitors.”
“… it is necessary to reject the argument that the minutes of the meeting do not refer to any reaction by the applicant to the information shared, so that no objectionable conduct can be imputed to it. Indeed, as is apparent from the case-law referred to in paragraphs 105 to 111 above, the mere disclosure of sensitive business information to competitors amounts to a prohibited practice, since it removes uncertainty as to the future conduct of a competitor and thus directly or indirectly influences the strategy of the recipient of the information.”
“43. …it must be pointed out that the case at issue in the main proceedings, as presented by the referring court, is characterised by the fact that the administrator of the information system at issue sent a message concerning a common anticompetitive action to the travel agencies participating in that system, a message which could only be consulted in the ‘Notices’ section of the information system in question and to which those agencies did not expressly respond. Following the dispatch of that message, a technical restriction was implemented which limited the discounts that could be applied to bookings made via that system to 3%. Although that restriction did not prevent the travel agencies concerned from granting discounts greater than 3% to their customers, it nevertheless required them to take additional technical steps in order to do so. 44. Those circumstances are capable of justifying a finding of a concertation between the travel agencies which were aware of the content of the message at issue in the main proceedings, which could be regarded as having tacitly assented to a common anticompetitive practice, provided that the two other elements constituting a concerted practice, noted in paragraph 42 above, are also present. Depending on the referring court’s assessment of the evidence, a travel agency may be presumed to have participated in that concertation if it was aware of the content of that message.”
“46. In my opinion also, the concept of a concerted practice does imply reciprocity. A concerted action is necessarily the result of a consensus. However, the level of formalisation of that consensus should not be subject to overly rigid requirements, since this would undermine the versatility inherent in the concept of a concerted practice. 47. In particular, reciprocity should equally encompass tacit approval. 48. However, the possibility of inferring tacit approval, and therefore of establishing the existence of a consensus to cooperate rather than compete, depends on the context of the communication. 49. First, where an undertaking receives information relating to an illicit initiative and does not oppose it, its acquiescence in that initiative may be inferred from the absence of response, provided that the circumstances are propitious to the formation of a tacit consensus. The lack of opposition to an illicit communication is reprehensible because, under certain circumstances, mere lack of reaction from the addressee will lead the other party or parties to believe that the addressee subscribes to the illicit initiative and will comply with it. Therefore, in order to infer knowing participation of the addressee in a concerted practice, the context of interaction must be such that the addressee may be deemed to appreciate that the competitor will consider its silence as an approval and will rely on mutual action, even in the absence of response.”
“22. Counsel for all the Appellants submitted that many of the observations in the cases from which these propositions are drawn need to be understood in the light of the particular facts. They pointed out that it is just as essential to a concerted practice as it is to an agreement that there be a consensus between the two or more undertakings said to be parties to the agreement or concerted practice. That is true, but concerted practices can take many different forms, and the courts have always been careful not to define or limit what may amount to a concerted practice for this purpose.”
“81. According to settled case-law, it is sufficient for the Commission to show that the undertaking concerned participated in meetings at which anti-competitive agreements were concluded, without manifestly opposing them, to prove to the requisite standard that the undertaking participated in the cartel. Where participation in such meetings has been established, it is for that undertaking to put forward evidence to establish that its participation in those meetings was without any anti-competitive intention by demonstrating that it had indicated to its competitors that it was participating in those meetings in a spirit that was different from theirs…. 82. The reason underlying that principle of law is that, having participated in the meeting without publicly distancing itself from what was discussed, the undertaking has given the other participants to believe that it subscribed to what was decided there and would comply with it. 83. The principles established in the case-law cited at paragraph 81 of this judgment also apply to participation in the implementation of a single agreement. In order to establish that an undertaking has participated in such an agreement, the Commission must show that the undertaking intended to contribute by its own conduct to the common objectives pursued by all the participants and that it was aware of the actual conduct planned or put into effect by other undertakings in pursuit of the same objectives or that it could reasonably have foreseen it and that it was prepared to take the risk…. 84. In that regard, a party which tacitly approves of an unlawful initiative, without publicly distancing itself from its content or reporting it to the administrative authorities, effectively encourages the continuation of the infringement and compromises its discovery. That complicity constitutes a passive mode of participation in the infringement which is therefore capable of rendering the undertaking liable in the context of a single agreement. 85. Nor is the fact that an undertaking does not act on the outcome of a meeting having an anti-competitive purpose such as to relieve it of responsibility for the fact of its participation in a cartel, unless it has publicly distanced itself from what was agreed in the meeting ….”
“… it is indeed the understanding which the other participants in a cartel have of the intention of the undertaking concerned which is of critical importance when assessing whether that undertaking sought to distance itself from the unlawful agreement. Accordingly, the Court of First Instance was fully entitled, in paragraph 247 of the judgment under appeal, to rule that the mere fact that the appellant had left the meeting of4 October 1994 could not, in itself, be regarded as a public distancing from the cartel at issue and that it was for ADM to provide evidence that the members of the cartel considered that ADM was ending its participation.”
“It is apparent from the case-law that the communication that is intended to constitute a public distancing from an anti-competitive practice must be expressed firmly and unambiguously, so that the other participants in the cartel fully understand the intention of the undertaking concerned….”
“… Ronan would not have left the lunch and taken my, you know, feedback/discussion as a green light. As I’ve said before, I’m convinced that what I said, the tone of voice I used and −− and, you know, the way I −− I acted that he was not believing that I was going to look at his pricing or any proposal from the competition. I would not take any −− any follow−up or activity from that. Zero.”
“… it must be observed that the wording used by the applicant’s President in his letter to the President of FNAS is too general to amount to a public distancing. The letter merely expresses concern in relation to the discussions on prices that might have taken place between the participants and contains a reminder of the applicant’s internal policy in respect of competition law and, in that context, requests the President of FNAS to take steps to avoid such an anti-competitive practice; it does not, however, state that such a practice had actually occurred or that that letter was linked to the fact that its representative had initiated the concerted action in relation to pricing.”
“There is an indication that some discussions have been co-ordinated with other parties such as Vodafone. Calls were often referenced by indications such as, “I’ve spoken to x, and now I’m speaking to you….”
“A unilateral move will NOT create a change in UK distribution. If others follow, the change will come about.”
“it logically followed, given our position in 2013, that it made sense to get out of P4U altogether, so that the O2 logo was removed from above the door at P4U and customers realised that they needed to go to an O2 store to connect to our network and we had a chance to sell to them directly. Just hanging in with P4U purely for upgrades was commercially untenable for us in the longer term. Similarly, the volume of SIM only sales was sufficiently low to be immaterial to our exit decision and P4U sales of SIM only connections could not have supported a deal alone.”
“O2 was potentially surrendering a very profitable cohort of customers – the proportion of P4u’s customers who were already connected to O2’s network and who might buy an upgrade connection when they visited a P4u store.”
“1. Increase the volume traded in our most profitable channels, i.e. Direct and within that enable online growth 2. Maximise the profitability of our Indirect distribution through sound commercial agreements 3. Seek opportunities to change TUK distribution model to increase profitability allowing us to invest in new products and services”
“Last year we agreed to start the journey to exit P4U. There was little value in the deal being offered and the timing was right given other events that were going to happen through 2013 and 2014 [referencing the roll-out of 4G, the Refresh project and the expiry of the upgrades contract with P4u in January 2014] … It was the first step in effecting long-term change to TUK distribution model”
“- A complete withdrawal of P4U business for SIMO and Upgrades in January 2014. The 3 year plan assumes this to be the case - Working with Bain to model scenarios that could drive further change in the UK distribution space, such as a Carphone Warehouse exit at the end of the contract (end of 2014)”
“- Exit P4U on gross • Exit Tesco • Exit A1 Comms • Exit Phones4U for Postpay Upgrades & SIMO • Maximise value of CPW contract • Exit CPW if TUK direct performance is appropriate”
“The subsequent step of complete exit from P4U was more contentious with Pilar [Lopez] wanting to understand what that would mean in terms of volumes (for us and the market) before committing. Mark [Evans] made the point that we are currently half-pregnant with P4U (worst possible long-term state) and that therefore we either need to follow through with a complete exit or potentially reverse our previous decision to exit gross, and that whilst there's a risk, we have to walk away from P4U if we want to have a chance of not going back to square one. Following a positive decision on P4U, we can then talk to CPW about commercials whilst also keeping options open for an exit from them at end 2014. It was accepted that given the commercial terms (payment in advance), for any exit from P4U in Jan 2014 we need to make a decision by October…. Pilar was keen that we also look at alternatives which we said we'd be happy to look at subject of course to compliance with competition law. She also indicated she is open to remain with indirects but on the basis that the commercial terms are strengthened in our favour. Hence the review at end of July will explore all permutations and seek a collective view of the risks, rewards and preferred outcome.”
“What if we did not exit P4U, can we negotiate with P4U harder to get more favourable terms (similar or better than CPW) so the indirect volumes can be shared between the two vendors? I.e. so we have more strength in negotiations with CPW in 2014?”
“The decision to exit [P4u]? It is not clear that customers will come more to our shops vs today scenario. I would rather get to the end of 2014 with two indirects than with one.”
“These questions feel like we are going backwards.”
“Distribution/Phones4U decision”
“the key is to ensure that any future Indirect Channel relationship with Operators rebalances the economics. The worst example we had was with Phones4U who commanded the majority of the economic value of a customer, leaving Telefónica UK with far less than 50% yet still with the requirement to run the network and IT platforms.This in our opinion was weighted too much in their favour and needed to change. Hence over the last year, we jointly agreed to try to reduce the power of the Indirects, starting with withdrawing the gross additions business for postpay customers from Phones4U. So if the above is the UK distribution strategy, the next question is what further steps can we take to move us in this direction, remembering that ultimately we're not focused on a specific distribution outcome but one which delivers a more efficient economic model. In October 2013, we have a decision to make. Do we: A) Exit Phones4U business entirely, removing Postpay upgrades, sim only connections and prepay? B) Stay at present with Postpay Upgrades, Sim only and Prepay marketed through Phones4U but not reentering for Postpay gross additions? C) Re-enter Phones4U for Postpay gross additions?”
“sub-optimal as Phones4U are able to use our brand which ultimately gives the impression that they continue to offer all network operator services yet Telefónica UK receive only a very small proposition of their custom (at highly unattractive rates). Hence we're putting forward that a full withdrawal is both in our economic benefit short-term and creates momentum (hopefully for others to follow) for longer-term changes in the UK distribution model.”
“RD presents the paper. T.UK proposed to stop trading with P4U (SIMO, upgrades and P&G). This move is framed in the LTP debate of the distribution channel strategy. P4U shows the lowest profitability and by exiting this channel T.UK will make visible to others in the market what our channel strategy is. EC remarks that this step is aligned with the strategic objective, the challenge is not to increase dependency on CPW and leverage on our own channel. Action: T.UK. to migrate to direct as many P4U volumes as possible so to try to avoid further dependency on CPW.”
“Clearly we were disappointed with the news from your team last week but not altogether surprised.”
“As far as I was concerned the27 January 2014 meeting was not going to change any of that but it was agreed by me as a matter of professional courtesy, bearing in mind that TUK had had a long and perfectly cordial relationship with P4U to that point, and as we continually kept our distribution model under review, we may have wanted to re-establish that relationship at some point in the future. I envisaged that P4U would continue to do business and I was keen to ensure that we retained the option to trade with them again. ”
“During my meeting with Ronan on 27th January I witnessed some concerning potential anti-competitive behaviour. We were discussing a 3 month extension to our existing deal to discuss further commercial terms. Ronan gave one of the reasons for not wanting to do this was that Cesar Alierta Izuel (CEO, Telefónica) had given commitments to Vettorio Colao (CEO, Vodafone) and Eva Castillo Sanz (CEO, Telefónica Europe) the same commitments to Phillip Humm (Regional CEO, Vodafone Europe). He went on to say that he was less sure of the intentions of EE with respect to independent distribution because Olaf Swantee (CEO, EE) was not inclined to discuss EE distribution plans. I believe this behaviour to be inappropriate but do not think we should do anything at this time at risk of damaging network relationships.”
“… one or more of Telefónica and/or Telefónica Europe and/or O2: (a) Unlawfully colluded with and/or made unlawful commitments to Vodafone Group that prevented renewal of the O2 agreement. P4U is unable to identify the precise content of the commitments but avers that such commitments must logically have involved one or more of the following elements: i. A commitment to cease or reduce supplies to P4U (alternatively, supplies to both or at least one of P4U and CPW) ii. A commitment not to extend, renew or replace O2’s commercial relationship with P4U (alternatively, with both or at least one of P4U and CPW) iii. A commitment to move towards supplying at most one of P4U and CPW. iv. A commitment to reduce or eliminate O2’s reliance on retail intermediaries in the UK. (b) Unlawfully disclosed to Vodafone Group their future intentions in relation to one or more of the following aspects of their commercial conduct on the market (in competition with Vodafone Group): i. The extension, renewal or replacement of O2’s commercial relationship with P4U. ii. The extension, renewal or replacement of O2’s commercial relationship with retail intermediaries in the UK generally and /or P4u and/or CPW specifically. iii. The choice between trading with both or only one of the major retail intermediaries in the UK (i.e. P4U and CPW). iv. The reduction or elimination of reliance on retail intermediaries in the UK” (a) Unlawfully colluded with and/or made unlawful commitments to Vodafone Group that prevented renewal of the O2 agreement. P4U is unable to identify the precise content of the commitments but avers that such commitments must logically have involved one or more of the following elements: i. A commitment to cease or reduce supplies to P4U (alternatively, supplies to both or at least one of P4U and CPW) ii. A commitment not to extend, renew or replace O2’s commercial relationship with P4U (alternatively, with both or at least one of P4U and CPW) iii. A commitment to move towards supplying at most one of P4U and CPW. iv. A commitment to reduce or eliminate O2’s reliance on retail intermediaries in the UK. (b) Unlawfully disclosed to Vodafone Group their future intentions in relation to one or more of the following aspects of their commercial conduct on the market (in competition with Vodafone Group): i. The extension, renewal or replacement of O2’s commercial relationship with P4U. ii. The extension, renewal or replacement of O2’s commercial relationship with retail intermediaries in the UK generally and /or P4u and/or CPW specifically. iii. The choice between trading with both or only one of the major retail intermediaries in the UK (i.e. P4U and CPW). iv. The reduction or elimination of reliance on retail intermediaries in the UK”
“…, it is to be inferred in the circumstance pleaded above that the commitments and/or disclosures of information were not unilateral but were provided in return for equivalent commitments or disclosures from Vodafone Group and/or Vodafone UK. Without prejudice to the generality of the foregoing, it is inherently unlikely that an undertaking would provide a competitor with confidential and commercially sensitive information and/or a commitment as to its future conduct on the market unless it had received and/or expected to receive corresponding information and/or commitments in return.”
“I think that I was interested to gain a sense of whether Telefónica felt good about having exited P4U.”
“The understanding of "market repair" is basically, in this context, in the UK context -- it could be many different things in other markets -- but used in this context, it was really the dominance of indirect and the inability of operators to manage their own customers, and the consequences in terms of churn, profitability, loyalty and so on. So it was the uniqueness of the UK situation. … The solution -- the -- on my side, I can speak for myself, I cannot speak for the others. My side, I was comparing the number of direct stores that we had in Germany, in Italy, divided by population, and UK was under-indexing. Therefore, the solution was to have even more directly owned stores, or franchisees, which was discussed at the time, to improve the ability to communicate, to distribute, to give to customers and have a relationship with customers. As a consequence of that, that would have required reducing the number of indirect stores back to the observation that his Lordship made before, or having one of the two getting out. But it's a matter of total numbers of stores. You can have two smaller indirects or only one.”
“General situation of the sector”
“It was difficult to believe that Mr Dunne would have made the statements he did had they been true. That would risk frustrating the very scheme whose existence he had purported to disclose – it would be like robbing a bank and telling everyone you have done it. I queried whether Mr Dunne was playing mind games with us, seeking to undermine the trust between P4u and Vodafone UK in order to try to damage that relationship.”
“[Mr Dunne’s] whole demeanour at the time was very much: sorry, guys, there’s nothing I can do about it.”
“Maintaining strong relationships with key business partners (both networks and key suppliers). These relationships are monitored and controlled at Board level.”
“Customers visiting a P4U or CPW store were, as I saw it, more likely to have decided on a handset, but not on an MNO…. [I]n indirect distribution, the choice of network operator came second to the handset or accessory….”
“My feeling was that with the retail options that we had, actually we could outcompete them, ultimately with the range -- we were talking to Samsung, obviously a big handset manufacturer, with a goal of investing significantly in the UK; with AO.com, which was Dixons' biggest online competitor; obviously with Argos, with Shop Direct, which was another online player. So we felt we could have a portfolio of relationships that together would be much, much stronger than – than Dixons, which was obviously struggling in its own core market with Amazon and other -- other -- other online entrants. So -- so, again, a short term challenge. Medium to long term, actually, I thought we could outcompete them.”
“You seem to be assuming that P4U survives the merger unharmed, not sure I agree.”
“No, I don't agree with that, my Lord. I think it was precarious relative to the trading results. So, were we going to hit our budget? You know, that's what I was worried about in that sense. Was it precarious from a strategic perspective? No, it was -- it was a great retailer, you know, and -- and had a lot of potential.”
“We see there is a turning point where customers are getting very used to smartphones and they need to get more service and more assistance. We want to take that back. It's not about reducing share, it's about being in control of customers. It's hard to give a customer a Vodafone experience when someone walks into a shop where there is no Vodafone branding or staff trained by Vodafone. We want to bring the customer experience back into our hands.”
“As we’ve discussed, our Project Spring investment is intended to accelerate and enhance our Vodafone branded presence on the high street both through direct and indirect distribution channels. I want to reassure you that P4U is an important part of our overall distribution strategy and we remain committed to accelerating the renegotiation of our terms of trade.”
“• We set the goal of getting new terms agreed by end of March and we remain committed to this path • I understand many creative proposals have been made by your team and we are looking hard at these to see if we can find a way to make them work for us … • Our investment is Spring puts us back on road to growth over time (network, distribution, newco, brand) and we want to continue to partner selectively with like minded organisations committed to driving value back into the market, we regard P4U as one of those select partners • However, given our EBITDA challenge, we cannot continue to support an arrangement with the current commercials, it doesn't work for us”
“• Progress to date has focused on closing a 45% share/5 year deal with Phones 4U by April 1st • However P4U cash requirements (via a variety of mechanics) have been explored and are not commercially viable for VF • Levers to improve ROI of the P4U channel have also been explored and it is clear that more profitable pricing is the underlying opportunity to unlock ROI”
“Why can we not change base terms? - A change in base terms would result in Phones 4u having to refinance, there are material penalties in place which prevent this. - Also, Phones 4u current EBITDA just covers interest and capex”
“1 We are not going to get any further with P4U, the deal they have put on the table is now a "take it or leave it", Tim [Whiting] made this crystal clear on Friday. This is effectively he [sic] deal they put on the table a week ago minus the exclusivity. We need to decide whether these are terms we can live with, or not. If not, then we continue to trade under the terms of our existing deal until Nov. P4U category share now at 60k per month which [sic] the loss of O2 and if Dixons goes, that will be another 7-9k per month. 2 In parallel, CPW are now super keen to accelerate reneg from July 2015 to now. However we may feel about CPW, I would strongly recommend that we explore this option so we understand fully what our alternatives look like. We'll take you through initial thoughts on this on Monday and propose some next steps. Interesting times...!”
“Your subsequent counter proposal, which you detail below in your mail, has been discussed on a number of occasions. As you point out, while it was well received as a positive step in the right direction, it is not currently a deal we are in a position to accept because it does not deliver the necessary step change in return on investment. Following our meeting last week, I agree that it's important we continue the conversation to see if we can get to a point of agreement and I appreciate your offer to consider the movement of 100 stores across to the Vodafone brand. In order to respond formally to this offer, we'll need to spend some time working thru the detail but initial thoughts are that an exclusive distribution arrangement remains a challenge in the same way it was in your proposal earlier in March. However, I suggest we take a week to review the opportunity and then regroup to discuss as quickly as possible.”
“… we will have to have a retail presence (direct and indirect) more distinctive and branded than today in the UK.”
“Jeroen and Tim are in talks on how to structure our future partnership with the aim to improving branding and efficiency. I understand the respective proposals are still quite apart.”
“I think we have gone as far as we are going to get with them on the commercials.”
“Executive Summary • Recap: Our distribution strategy includes a number of activities, all aimed at strengthening direct channels to reduce our reliance on indirect, improving ROI and mix profitability • Indirects have role to play in sourcing customers and primary connections from areas of market not reached by VF directly — objective is to maintain some level of indirect volumes while improving ROI • Negotiations with P4U show they have limited flexibility to improve VF's ROI — no obvious deal acceptable with P4U that meets our objectives, deal expires Oct 31, 2014 • Merger talks between CPW & Dixons has created new scenarios to consider. CPW is looking for deal support — has offered to renegotiate July 2015 contract early— potential opportunity for VF • Re: P4U, assuming deal is NOT reached, P4U may exit the market — potential 'acquisition' opportunity to VF Recommendation: 1. Proceed with negotiations with CPW to test potential of meeting VF's indirect objectives. Look for heads of terms in next 4 weeks 2. Maintain negotiation position with P4U, consider their latest proposal to transfer 100 of their stores to Vodafone 3. Prepare for P4U Plan B, e.g. acquiring prime retail assets to accelerate Hunter”
“- They remain concerned that us pulling out may not immediately be the end of P4u — either EE prop them up or they do a deal with BT - As a result a lot of the time was spent discussing the stages to improved volume and ROI - Amans view is that the order to do this is to firstly stabilise volume and then place in a contractual trigger to improve ROI once P4u have exited … - He agrees that the current contract in pretty good shape and is not proposing any major changes. Also PAYG contract very close to long form signature so I suggested we reference that in PAYM deal rather than re open PAYG (any new commercials will go into this PAYG agreement) - With increased volume, cash is an issue for them. He knows the deal P4u has and was pushing to have some of the cash benefits we would recognise transfer to him — another lever for us potentially”
“CPW would see it as a significant change for Vodafone UK to walk away from P4U, and whether we did so was dependent on what CPW were willing to offer commercially to make this happen. … In my view, exclusivity was a high value proposition for CPW because it gave them the opportunity to gain a significant advantage over their main competitors and to hurt P4U financially, particularly given the likely negative impact of the CPW/Dixons merger on P4U.”
“Let’s avoid creating the perception that we’re going to rip up the current contract and start over because we’ll still be here negotiating in 2015 if that’s the plan!”
“… had a great dinner with Graham Stapleton last night. They are totally up for doing something big and transformational. I said we had no appetite for protracted negotiation, window is tight and it's a one off opportunity. I sense a lot of commitment there and we will be all over it.”
“Cindy it was a great evening and I am looking forward to moving things forward quickly in the next couple of weeks.”
“Let’s move quickly, do a deal and then tell the other one to go away ….”
“Phil [Roberson] and John [Whittle] have had a number of discussions this week on the subject, and they are meeting again tomorrow. We are keen to explore whether there is an option that bridges the gap between your position and ours, which I don't think is insurmountable at this point.”
“For the Vodafone UK CEO and the next most senior Vodafone person directly involved in the extension negotiations to come up to Stoke-on-Trent for a day and go through all the consumer research, our shared plans about what we were discussing doing with our stores and the commercial terms of the deal is a huge commitment.”
“Negotiations on core terms are complete and two options are now on the table.”
“exclusive with CPW” or “partner with both CPW & P4u”
“There are few compelling reasons to continue to trade with P4u beyond the end of their current contract — an exclusive deal with CPW provides: • Improved direct volumes • Higher ROI • Improved cash terms • Short term EBITDA upsides • Guaranteed inflow volume above L[ong] R[ange] P[lan] Reasons to continue with P4u include: • To guarantee 2014/15 inflow share (a risk we believe can be mitigated) • To provide competition to CPW • To drive inflow share beyond 400k min from CPW • Protection of the existing base acquired by P4u Not contracting with CPW runs the risk of being out flanked by EE, leaving us with no leverage at contract renegotiation next July” • Improved direct volumes • Higher ROI • Improved cash terms • Short term EBITDA upsides • Guaranteed inflow volume above L[ong] R[ange] P[lan] Reasons to continue with P4u include: Reasons to continue with P4u include: • To guarantee 2014/15 inflow share (a risk we believe can be mitigated) • To provide competition to CPW • To drive inflow share beyond 400k min from CPW • Protection of the existing base acquired by P4u Not contracting with CPW runs the risk of being out flanked by EE, leaving us with no leverage at contract renegotiation next July” 403. The memorandum summarised the financial impacts and recommended: “Sign CPW as exclusive partner @ 30% share and a cap of reduced 500k”
“An indirect partner like P4U ultimately cannot survive with only one MNO, because of lack of sufficient volume, the inability to offer a choice of major MNOs to customers, and the inability to rotate customers from one network to another”
“Regardless of how much indirect inflow VF require, it is difficult to see benefit of VF continuing with P4U”
“However, we must have agreed all significant elements of the deal with CPW before serving notice on P4U so as not to weaken position”
“In summary — EE response will likely depend on future inflow requirement from indirect channel & relative commercials with CPW & P4U”
“… you don’t stop negotiating having conversations with both parties until one is actually completed. And “completed” means legal documents have been signed. So that’s the moment where there is no way back and you have made your decision, in this case to go with Carphone exclusively. Q. All right . So is it your evidence that until you’d signed a deal with Carphone Warehouse, you hadn’t given up on the idea of signing a contract with Phones 4u? Is that your evidence? A. I’ve −−I’ve learned over the years that it’s always important to keep your options open and to expect the unexpected. So anything could have happened during that process. So indeed, nothing is done until it’s signed. So yes, until −−until that point, we would be working with both parties.”
“… until the deal was done with Carphone, the deal wasn’t done, and we needed a plan B as well. Phones 4u was our Plan B,”
“I have kept conversations live & as sincere as possible as agreed with Cindy, but it’s quite difficult now.”
“There's no stalling P4U now Cindy, they've agreed with everything I tried to stall them with (tightening landing strip, capping volumes, making break point unconditional, they aren't even charging us for branding)!”
“Jeroen and I are with Philipp Humm and Vittorio this Friday (for several hours) going through things and I am hoping we come out of that session with the full support to proceed.”
“I would tend to go exclusive with cpw. Could reduce indirect footprint and give us stores.”
“• Vittorio's view is we are creating a monster in CPW, what contractual protections are we putting in place to ensure they don't screw us over the period of the deal (for FAQs) • Vittorio does not buy into the assumption that P4U will fall over, can we please pull together a 1 page overview of their financials and volumes by operator (ask Nick P/Cindy V for help with the P4U financials) • If P4U does fall over, where do the volumes go? What have we assumed and why? What is the basis for our assumption? In fact we ought to lay out in some detail all of our assumptions. • Does this deal undermine our distribution strategy? Why not? Why shouldn't the Board take away our Spring/Hunter money? … • We need to do a side by side comparison of the CPW deal today vs new CPW deal, then P4u deal today vs new deal with P4U … • Vittorio is going to push on the P4U exclusive scenario, have we modelled this? I assume this scenario means we do the new deal with P4U on the new deal terms and we trade with CPW until July 2015 at which point we don't extend CPW and we become at that point exclusive to P4U.”
“This is it, we have a unique opportunity to change the game from a distribution point of view, which is the biggest commercial driver of our ten point plan. This and the network plan will take us back to growth. So, the next ten days are crucial to close this deal, so please prioritise and work together so we are fully aligned and 100% behind this plan. The only way to get this past Vittorio is to show conviction, belief in the plan. If he does not see or feel that, he will not approve it. If however, he feels the commitment he may still not like the plan but will give us the approval. He challenged us to change the game, change the pace, be ambitious, this is our chance to do just that.”
“Fundamentally their new proposal doesn't shift the dial on the commercials but we want to keep them in play just in case we do not close out CPW.”
“I caught up with Cindy by phone this afternoon. She confirmed that everything has been on hold because of strategic conversations between Group and BCP/David Giampaolo. They share our concern that the supply deal could get caught up and delayed by this - she is meeting Philip Hum next Wednesday and will be pushing to sign anyway and let the other conversation take care of itself. Very supportive conversation, but it's out of the UK's hands at the moment...”
“… she absolutely was saying that she was recommending the deal that we had now documented in the Partner of Choice agreement to the board for approval.”
“good point to bring out”
“Vittorio [Colao] still does not buy the argument that they would go bust.”
“I just spoke to Warren. Mr Warren Finegold: a member of the Group Executive Committee. He is … supportive. The one challenge he has is our assumption p4u will cease trading. His view is that the banks will take over and run it for cash as long as they can. Not sure how to model this but that would be a case (slightly?) worse than our preferred scenario.”
“EE response will likely depend on future inflow requirement from indirect channel & relative commercials with CPW & P4U” b) On6 June 2014 , Vodafone UK heard from a journalist a rumour (which featured in a press article the next day) that a major MNO may be leaving CPW, which Ms Rose thought must refer to EE. She emailed her colleagues next day voicing her concern: “We need to think thru whether we would still recommend doing this deal in a scenario in which EE stays with P4U on an exclusive basis (which is how I read the rumour).”
“Two scenarios that scare me the most are now “last man standing” (EE goes CPW only before we do) and P4U 2 operator model (with EE and BT)”
“Well, certainly what scared me the most was the first scenario, because EE had twice as much volume in Phones 4u as we did. We were about a third of their volume, EE was about two−thirds of their volume. And if EE had pulled out of Phones 4u before we did, we would have been the last operator trading in Phones 4u, and they would have been very wounded at that stage and struggling, and we would have had little to no negotiating leverage with Carphone Warehouse. So that scenario, for us, would have been disastrous. Which is why we were so intent on moving quickly and seizing first mover advantage.”
“VF cannot be exposed to EE's distribution strategy which carries large risk to VF's inflow and ROI should EE move exclusively to CPW and stop supporting P4U. Therefore we are recommending a proactive stance that puts EE under pressure in P4U and secures our share with the strongest retailer on improved profitability, by signing the CPW deal and exiting P4U.”
“We believe time is of the essence to lock our position ahead of EE.” b) Another memorandum was finalised the same day addressed to the Vodafone Group Board It appears that this was prepared in case the decision required Group Board approval, but in the event that did not prove necessary so it seems this memorandum was never sent to the Board. that similarly highlighted, as a risk if Vodafone UK did not proceed with an exclusive contract with CPW: “EE does a new, exclusive deal with CPW before Vodafone does, and Vodafone is left as the only mobile operator in a commercially unviable P4U. EE's exit would lead to the almost certain disappearance of P4U in its current form and lead Vodafone into a defensive and potentially costly negotiation to extend our current deal with CPW.” c) In her presentation on11 June 2014 to the consumer division team, Ms Rose referred to the press rumours suggesting that EE may exit from either CPW or P4u, or possibly both. d) The17 June 2017 slide deck presented to Mr Colao, contained the headline: “ ‘Wait & See’ is not a viable option because the risk of others taking first mover advantage and shutting us out is too great … we need to act”
“Mitigate risk of being locked out by EE moving first”
“ EE does a new, exclusive deal with P4U and thereby enhances the likelihood that P4U can trade through their current financial constraints. If Vodafone is committed to CPW on the terms summarised above, in this scenario we would be precluded from trading in P4U.”
“Both expressed the view that Vodafone would swiftly follow any action we took in indirect. Clearly someone at Voda is clearly and consistently conveying this message.”
“… it is inherently unlikely that an undertaking would provide a competitor with confidential and commercially sensitive information and/or a commitment as to its future conduct on the market unless it had received and/or expected to receive corresponding information and/or commitments in return.”
“Making 4G a success was absolutely crucial for EE, and if we were not able to do so, I felt I would have failed as a CEO.”
“P4U had been more willing than CPW to support EE's vision and our efforts to differentiate ourselves from the competition, and were aligned with EE's desire to push 4G hard at that time.... I always thought that P4U would eventually be able to improve their commercial terms to something closer to CPW's, which, combined with their focus on 4G, would have made them a much more attractive indirect retailer than CPW.”
“We expect the outcome to follow our preference for fewer, deeper, longer term relationships with key partners who are prepared to share our network and service goals, while focussing on value”
“A combined DSG / CPW will create a retailing giant with over 1,000 UK stores that offer a unique platform for vendors to showcase a broad range of connected and non-connected devices. The buying power of the merged entity across multiple categories will deliver price leadership vs. single category retailers, challenging the business models and driving down margins for the remaining stand alone indirect channels (particularly P4U)”
“— O2's exit from P4U and the proposed DSG-CPW merger has raised question marks about P4U's ability to survive in the UK market. — EE is keen for P4U to remain in the UK market to maintain competition in the indirect channels and prevent a combined DSG-CPW from dominating the sector — EE believes that P4U's survival is conditional on it maintaining at least 2 network partners (currently EE & Vodafone) — EE has investigated several potential options to mitigate the risk of a P4U market exit. These include: — Acquisition by EE: unlikely to be economically viable — Acquisition by EE and another operator: acquisition not viable beyond£600m valuation” — Acquisition by EE: unlikely to be economically viable — Acquisition by EE and another operator: acquisition not viable beyond£600m valuation”
“BT may convert P4U to a direct channel, forcing EE and Voda out of channel and making competition for share in CPW more intensive”
“On est OK qu'il peut y avoir une occasion historique de faire la peau à la distribution indirecte, mais tricky car nécessite coopération de Vodafone et pb [problème] potentiel de droit concurrence. Cela vaut donc d'être étudié.”
“begin exploratory discussions with other MNO and appoint bank”
“BC Partners, owners of P4U, are likely to have approached DSG, CPW, VOD and potentially others (e.g. BT, Tesco). They have approached EE in November about a minority stake in P4U”
“• Does the Board believe now is the time/opportunity to make a significant move in distribution to improve EBITDA? • If so, does the BoD concur a joint acquisition of P4U with a 3rd Party is the best scenario? • If a joint acquisition of P4U with a 3rd Party is the best scenario, then can we agree approach? ”
“Opportunity for structural change may not be available at a later stage. Also, EE is currently negotiating with P4U and CPW about improved terms and contract extensions. EE's strategic choice directly impacts its optimal approach to these negotiations and needs to be made now”
“It would not have made commercial sense for EE to spend a large amount of money to buy P4U and then close most of its stores. A joint acquisition between EE and another MNO, which involved keeping the P4U business running, as envisaged by slide 14 of the "Distribution Strategic Update" would have seemed more commercially viable to me, and something worthy of further investigation by EE. ”
“1) "acquisition" of one distributor, while improving terms with the other, (=project November) The code-name “Project November” is somewhat confusing as it was originally used by EE to refer to its strategy of considering various alternative scenarios for distribution, which began in November 2013, but later appears to have been confined to the scenario of an acquisition of P4u. 2) "improve": - improve terms with one, using their request to receive support for their merger with D, = EE to describe how they use the merger to improve their terms with CPW, - and either exit from the other one or condition the renewal with them to significantly improved terms, During meeting and calls, EE shows preference for acquisition scenario while Orange and DT requested a detailed study of the "improve" scenario as pre-requisite benchmark and would like to have a full understanding of the negotiations which took place with these 2 distributors.”
“Need VOD back-up case in any circumstances.”
“I was concerned at this time that EE’s valuation of P4U was questionable, that EE’s analysis did not account for SIMO trends, and that the rationale for an acquisition in which EE and another MNO would acquire P4U’s 500 stores with a view to keeping only 100 was unclear.”
“These models necessarily relied on various assumptions. Where possible, these assumptions were derived from historic data (e.g. the average profitability to EE of connections obtained via different channels); where such data was not available, we would develop a reasonable estimate based on other relevant information – for instance, if looking at "absorption rates" (i.e. the percentage of sales volumes currently obtained through an indirect retailer that EE was likely to be able to keep if it did not renew its agreement with that retailer), we would consider information such as our retail footprint and telesales capacity. Once a model had been put together, we would discuss with the rest of the indirect team whether we thought particular assumptions were realistic. If ongoing developments, such as live commercial negotiations, were relevant to the assumptions, this information would be incorporated. For instance, if we thought that we could negotiate more sales volumes with a particular indirect retailer, this would be factored into any assumptions. This was an iterative process, and these assumptions would often be revised several times over the lifetime of a model. As they were dependent on a number of factors, the assumptions carried a certain degree of risk. Further, each assumption did not exist in isolation. For instance, the percentage of customers obtained through an indirect retailer that EE could expect to retain For the meaning of “retention” in this context, see further at para517 below. if it withdrew from that indirect retailer depended, in part, on (i) the extent to which EE could negotiate increased volume commitments with other indirect retailers and (ii) how much EE was willing to invest in promotional offers to acquire new customers, and retain existing customers, via its direct channels. This is also why the assumptions were regularly adjusted; we would fine tune them as we thought about each point and how they related to each other in more detail, and this helped us refine the model over time so that the final version was sufficiently robust. Separately, we would also test the "sensitivity" of the model's output to particular assumptions, to understand how much a change in the value of those assumptions would affect the model's output. Through this, we would be able to understand how much the output could change if those assumptions were not ultimately borne out. ”
“This sort of modelling analysis was highly sensitive to the assumptions we made – for instance, assumptions as to the cost of purchasing P4U; as to the percentage of acquisition and upgrade Connections previously obtained via P4U that EE could expect to retain if EE (i) acquired P4U or (ii) withdrew from P4U; as to the improvement in contractual terms that EE was likely to be able to negotiate with CPW and P4U; and as to the handset cost efficiencies that EE was likely to benefit from in different scenarios. By way of illustration, in a scenario involving EE pulling out of P4U, a decrease in the assumed percentage of acquisition and upgrade Connections previously obtained via P4U that EE could expect to retain would, all else being equal, result in the modelling predicting a less profitable outcome for EE.”
“a. EE must review its presentation, in conjunction with DT/Orange Management Control b. Strategic aspects of the distribution market (CarphoneW / Dixons consolidation, discussions with Vodafone) to be analysed by EE in conjunction with DT/Orange Management Control, with support from M&A (Olivier Froissart) as required c. Preparation of an informal BoD on distribution strategy 2nd half of May”
“We know that the final preparation of the documents for the distribution business need some time. To avoid further delays and any disappointment on the shareholder's side on the details that will be delivered we recommend that the controlling/M&A teams of EE, Orange and DT should meet beginning of next week to define the content and format of the underlying business cases that are needed for the board document. This will enable Orange and DT to evaluate the business on their standard tools. As 1st May is a bank holiday in France, Germany and 5th May is a bank holiday in the UK we should already start on Tuesday and/or Wednesday. Otherwise we will lose another week”
“What can we realistically achieve?”
“There is a chance that P4U will not survive without us but its [sic] still risky. I will do some scenairos [sic] to demonstrate this.”
“1. Pull out of P4U and sign enlarged CPW contract 2. Purchase pf P4U of consolidate into our estate and sign an enlarged CPW contract 3. Purchase of P4U and run it as it a going concern with a CPW contract 4. Purchase of P4U and run it as it a going concern without a CPW contract 5. Purchase the rev share base [of P4u] and the[n] reinvest the saving into stores/Brand/offer 6. Pull out of P4U and reinvest the saving into stores/Brand/offer 7. Negotiate better terms with both P4U and CPW”
“… very infuriating …. we move from threat of armies being deployed on us before even concluded assessment ourselves to complete withdrawal – not helpful and wastes time”
“Short-term recommended; long-term less attractive”, whereas for option 2 the comment was: “Strongest recommendation.”
“It does again start to show that without investing a large amount upfront then just getting better terms is the best option from the numbers perspective.”
“Following various calls and meetings with EE and their difficulty since 4 weeks (...) to provide and present the necessary basic distribution data to get a clear and simple picture of their distribution situation in the UK moving landscape, and in view of the discussions vs CPWH/Dixons and P4Y [sic], Neal [Milsom] has accepted last Friday, Marie-Christine [Lambert]'s offer that we spend 2 days in London with EE controlling and distribution teams in order to drill down EE distribution data in the UK market, and then assess on the basis of key figures and trends the various possible scenarii for EE. As mentioned to EE, we (at Orange) DO NOT NEED ADDITIONAL SLIDES but we propose to work with EE teams on EE basic data… … the spirit of the session is a CONSTRUCTIVE one, in order for us to understand very clearly all EE distribution details and build a robust appropriate modelling together.”
“Assuming P4U are able to connect the remaining 30% on another MNO”
“• Is P4U still in business? • What are the legal and accounting implications if P4U cease to be a going concern? • Are P4U Still a going concern, even with EE business?”
“What do we believe happens to P4U if we pull out and how quickly does it happen”
“time’s of the essence, you’ve got to finish off your modelling, please focus on the ones that aren’t purchases”
“Operators focussing on direct channel performance - indirect disruption likely to be led by Vodafone” 539. And under the summary analysis of Vodafone UK’s position, one bullet reads: “• KEY RISK: Vodafone acquisition or withdrawal from P4U will detrimentally impact EE's trading”
“1) Re-sign with CPW and P4U on improved terms 2) Sign enlarged CPW contract and run P4U contract down during 14/15 and exit in Sep 15 3) Run down both P4U contract (exit Sep 15) and CPW contract (exit Dec 15), offset by investment in direct channels”
“We are not going to dress up the plan just to get to a better number that will not be achievable.”
“1. Indirect distribution channels will continue to have a major influence in UK market for the foreseeable future. 2. EE has to have a major presence in CPW/DSG merger to maintain market leadership position. 3. Phones 4U situation is precarious and gives EE options with risk (1m connections p.a). 4. Phones 4U will attempt to strengthen their position by signing BT or Three/O2 back or finding a retail partner e.g. Argos to form a JV.”
“1) Remain in CPW and 4U - rebalance volumes from 4U to CPW. 2) Exit 4U, move 4U volume to CPW. 3) Exit 4U and CPW - move all volume to EE Direct channels. 4) Exit 4U, spread 4U volume between CPW and EE Direct channels.”
“1. Phones 4 U sign partnerships with O2, Three, Virgin, SKY or BT. 2. Phones 4 U sign partnership with another retailer e.g. Argos. 3. Direct channels don't absorb the connections the rate assumed. 4. Absorption rate sensitivity of 4U customer base. 5. CPW/DSG execute merger badly and don't deliver EE committed volumes.”
“1. Sign an enlarged and improved CPW contract - June. 2. Do not sign extension with 4U - continue negotiations. 3. Consider 2 options with 4U - Remain present with better terms, smaller volume. - Continue to explore options to exit Sep 15 with less risk and work to improve financial picture.” - Remain present with better terms, smaller volume. - Continue to explore options to exit Sep 15 with less risk and work to improve financial picture.”
“EE's modelling (at least insofar as it concerned absorption via CPW or as a result of additional investment in EE's direct channels) did not rely on EE absorbing the specific customers that EE would otherwise have obtained via P4U; rather, the absorption assumptions were a means of quantifying, more generally, the percentage of volumes lost in one channel that was likely to be captured in other channels. In the context of Scenario Four, the absorption assumptions therefore represented the total number of customers that EE expected to gain through CPW and its existing and new direct channels, expressed as a percentage of the number of customers that EE expected to forgo from ceasing to supply P4U beyond September 2015.”
“based on the assumption that, for the first 18 months following a withdrawal from P4U, EE would need to increase its A&R spend by£10 per Connection in order to maintain its customer base; EE would then be able to reduce its A&R spend to current levels for nine months; and, thereafter, EE would be able to reduce its A&R costs by£10 per Connection in 2018 and 2019, because by that point P4U's exit from the market (or its significantly reduced market presence) should result in less aggressive discounting of handsets generally.”
“If we exit it is likely that they [P4u] survive and we would force them into value destructive actions within the market… We believe that they would find another partner.”
“How long do we believe P4u will survive if we pull out.”
“Operators focussing on direct channel performance – indirect disruption likely to be led by Vodafone”
“As I recall the meeting, no decision was made and all options remained under consideration. There were too many question marks at the time to be able to reach a view on which option to pursue. Exiting P4U was an option being considered and all options remained on the table after that meeting ….”
“o Scenario 4 presented but, by OS's own admission: not very encouraging. o OS: "We are giving ourselves time to think and possibly talk again about 4PU acquisition in Sept'15" o => S4 Ok in the short term it seems: EE authorised to sign contract extension with CPW but acquisition scenario not completely abandoned … o TD: “Direct must be reinforced” o TD: “be careful with VOD (anti trust risk)” … o TD: “be careful with VOD (anti trust risk)” ii) On 23 May, Mr Allera sent an email to Mr Harris, stating: “As promised here's my take on what was agreed 1) Agreement that option 4 is right strategic direction for EE 2) Agreement to pursue completion of signed CPW contract to deliver re-balance between 4U and CPW volume 3) Agreement not to extend 4U deal 4) Agreement to continue exploring options with 4U including acquisition 5) Agreement to proceed with creating an implementation plan to mitigate the risk in scenario 4 — particularly around volume assumptions — to focus on base/base marketing and loyalty propositions to minimise churn” 1) Agreement that option 4 is right strategic direction for EE 2) Agreement to pursue completion of signed CPW contract to deliver re-balance between 4U and CPW volume 3) Agreement not to extend 4U deal 4) Agreement to continue exploring options with 4U including acquisition 5) Agreement to proceed with creating an implementation plan to mitigate the risk in scenario 4 — particularly around volume assumptions — to focus on base/base marketing and loyalty propositions to minimise churn”
“increasingly it was also my view that Carphone/Dixons was going to be a key for our long-term success. Maybe the words "not very encouraging" must have related to the fact that it was a difficult scenario. I mean, we didn't have -- you know, we didn't have the terms and conditions from Carphone Warehouse, we had a situation where Carphone Warehouse was very big with O2, we were not in the so-called strategic tent with them, ...So maybe that's why. Because I do remember that I was, you know, concerned that it was a very difficult scenario to execute for us.”
“… Olaf is in Germany on Tuesday and before this he and Thomas Dannedfeldt (DT CFO) want a view (headline) on the following: 1. Latest view of purchase price of P4U (assuming we bought outright) 2. What the potential value of Vodafone's backbook would be (assumption similar deal to EE) ie. if they wanted to settle this liability, what would the cash price be to settle? 3. In other words what would our net cost be 4. Additionally, an estimate of how many shops and at what price they might buy from us (given their intention to increase Direct stores to 150) The other question is at what price would it make sense for EE to buy P4U outright irrespective of whether Vodafone bought themselves out of their back-book liability or not. If there's any way of getting an estimate to the above today would be much appreciated…..[sic] DT may then just help convince the French.”
“1) Voda buys P4U 2) Voda pulls out of P4U”
“I think in the first one we join in the purchase and the second we may pull out as well.”
“I am being told by Tim [Whiting] that he has had a further chat with Mark [Marc Allera] and the expectation is for us to have an agreed form document by the end of next week. If that is in line with your instructions, can we catch up on Monday to make sure that we can try and conclude all the outstanding points to meet that time horizon.”
“Timings as agreed today are that they would receive board approval (or not as the case may be) by the end of May and then we could finalise 5 working days thereafter. Timings have slipped before so would not see that as set in stone so clearly room for delays/extensions if required.”
“EE's negotiation strategy at this time was to delay the progress of negotiations with P4U while it was seeking to advance its negotiations with CPW to see what terms it could get from CPW.” 582. And she added in her oral evidence: “My instructions from the EE board members She clarified that in fact she was referring to Mr Milsom and Mr Allera. … was to effectively stall [the negotiations].”
“We will follow up on requests to meet our Shareholders … and keep you posted.”
“I understand the level of shareholder approval you need to go through and the number of other priorities you currently have in the business but would appreciate any support you can give to get to a decision so we can move on and focus on the areas of value creation.”
“I remember feeling quite awkward and uncomfortable about this meeting, as I could tell that P4U were anxious to get the contract extension signed. At the same time, we were in a difficult position as we had not yet reached any agreement with CPW. It was in EE's best interests, therefore, to keep these negotiations with P4U alive until the new deal with CPW was over the line.”
“I understand from Marc that we still have made little progress in getting shareholder approval at your end for our deal extension and as we are now in the holiday period this not imminent. We are disappointed and frustrated by this as we have for some time believed it to be the key to unlocking significant value for both businesses. Rather than leaving the current deal on the table we think it is best to withdraw it and leave the ball in your court as to when you are in a position to take these discussions forward.”
“£238m lost through not absorbing all customers currently in P4U is made up through growth in direct and improved terms in CPW”
“The deal negotiated is best and final … there is no further opportunity to revise/negotiate … It is now either ‘take it or leave it’ … In addition, any delay would expose EE to the risk of other operators taking a larger share at EE’s cost.”
“Hello Philipp, I would like to talk to you for 5-10 minutes max regarding a topic for the UK market. When can I call you (possibly today or tomorrow) ? Thanks, Benoit Scheen (Orange Europe).”
“Hello Philipp, after review I will unfortunately not be able to come to London before several weeks. Could we then organize a 'secured' call with both of us using a new prepaid number. If we are both using a new prepaid number, the call will be secured. I could have a prepaid number being ready for tonight (to have a potential call tomorrow). Would this be a suitable solution for you ? Regards, Benoit Scheen”
“Hello benoit, not knowing what you want to discuss I feel not comfortable making these sorts of arrangements. If there is topic we need to discuss/decide suggest to arrange for a call together with a competition lawyer. Sorry best philipp” “Hello Philipp, I do not want to force you in a setup that you don't find suitable. I wanted to address a potential interesting joint opportunity on the UK market in an informal way. So, I don't think that the presence of a lawyer would be suitable at this stage. And let me re-assure you, my intends were positive and constructive. But I guess that we will have to look at it in a different way (as potential decisions will have to be taken in the coming weeks) .... It is maybe a missed opportunity for our respective companies .... Regards, Benoit.”
“it is inherently unlikely that an undertaking would provide a competitor with confidential and commercially sensitive information and/or a commitment as to its future conduct on the market unless it had received and/or expected to receive corresponding information and/or commitments in return.”
“Marc Allera (MA): reports that BT would have sent CPW and 4PU their proposed terms for the distribution of their mobile offerings o Neal Milsom (NM)/MA: BT and others could not fill EE and VOD activity leaving P4U simultaneously => "then, 4PU will starve”
“NM: "my theory is that CPW wants to secure 2 big accounts in the merge [sic] (O2 and EE, relations with VOD being deteriorated); then they’ll put pressure on the others”
“Neal wants us to get this deck completed but the focus is P4U, he wants us to be 100% sure of the impact if P4U fold earlier than expected ie In the next couple of months. The expectation is that Voda are about to pull out.”
“• The deal secures a healthy volume in the UK's largest Indirect Retailer on enhanced terms versus the current contract • As Marc [Allera] advised [on] Friday, timing is critical — allowing Vodafone to take this volume could have disastrous consequences for EE”
“They remain concerned that us pulling out may not immediately be the end of P4u — either EE prop them up or they do a deal with BT”
“If I had genuinely believed, or expected, that Vodafone were about to pull out of P4U, I would have spent the whole remainder of August 2014 intensively preparing for that scenario, and I would have been in a much better position and much better prepared, rather than being caught off-guard as I was, when I learned on29 August 2014 that Vodafone would be withdrawing from P4U and that P4U were at risk of entering administration.”
“Q. ... Why did you think Ofcom might perceive the sequence of events in the wrong way? A. From memory, we simply wanted to lay out with Mr Richards, the then director general of Ofcom, the sequence of events, because EE signing its contract with Carphone Warehouse was −− appeared to be in a very similar time frame to Vodafone confirming their exit from Phones 4u. Q. You were concerned, weren’t you, that Ofcom might get the impression from the sequence of events that there had been some sort of coordination between EE and Vodafone; is that right? A. Yes, that was in part of the thinking, I would say.”
“Timeline of decision process”
“Important to avoid any supposition EE knew and link to signing CPW/DSG (even though such supposition is mistaken it could trigger enquires/investigation)”
“being the only major supplier of what was supposed to be a multi-network retailer offering choice and perceived "independence" on the high street would be unattractive for Vodafone (just as it would be unattractive for EE).”
“…, it was only by an unlawful collusive agreement and/or concerted practice resulting in a refusal by all the MNO Defendants to supply Connections to P4U that each of the MNO Defendants could rationally and/or without intolerable commercial risk cease to supply P4U. No MNO Defendant acting rationally and/or in its own commercial interests would choose unilaterally to cease dealing with P4U in circumstances where P4U was likely to have one or more continuing commercial relationships with other competitor MNO Defendants (or another major MNO), because to do so would cause such MNO Defendant to lose significant market share of Connections to other MNO Defendants. An MNO Defendant that unilaterally ceased to deal with P4U could not have had sufficient confidence that its competitors would also to cease dealing with P4U and so cause P4U to cease trading (which, it is averred, was necessary in order for the decision to cease supplying to result in a net benefit to the MNO).”
“Both Orange and DT were established in the telecommunications sector and they did not treat EE as a financial investment, but rather as a strategic partnership. They wanted to be actively involved in developing and executing EE's commercial strategy, and to support and add value to their investment wherever possible.”
“13.2 EE hereby undertakes and agrees that it will in good faith observe and perform the terms and conditions of this Agreement and in particular EE shall, and shall procure that its employees, agents and subcontractors will: 13.2.1 comply with all legislation and regulations, … 13.2.2 supply to P4U from time to time such amount of the then current technical brochures, … 13.2.3 arrange and make available to P4U, should P4U so request, sales and technical training courses …. 13.11 EE hereby undertakes and agrees with P4U that it will act in good faith and not carry out any activity designed to reduce or avoid the making of any Revenue Share Payment(s) to P4U as contemplated by this Agreement.”
“The court’s task is to ascertain the objective meaning of the language which the parties have chosen to express their agreement. It has long been accepted that this is not a literalist exercise focused solely on a parsing of the wording of the particular clause but that the court must consider the contract as a whole and, depending on the nature, formality and quality of drafting of the contract, give more or less weight to elements of the wider context in reaching its view as to that objective meaning.”
“Such "relational" contracts, as they are sometimes called, may require a high degree of communication, cooperation and predictable performance based on mutual trust and confidence and involve expectations of loyalty which are not legislated for in the express terms of the contract but are implicit in the parties' understanding and necessary to give business efficacy to the arrangements. Examples of such relational contracts might include some joint venture agreements, franchise agreements and long term distributorship agreements.”
“Such ‘relational’ contracts involve trust and confidence but of a different kind from that involved in fiduciary relationships. The trust is not in the loyal subordination by one party of its own interests to those of another. It is trust that the other party will act with integrity and in a spirit of cooperation. The legitimate expectations which the law should protect in relationships of this kind are embodied in the normative standard of good faith.”
“Their collaboration was formed and conducted on the basis of a personal friendship and involved much greater mutual trust than is inherent in an ordinary contractual bargain between shareholders in a company. Although day to day management of the businesses was left to Mr Kent, strategic decisions which would involve further capital investment, such as whether to purchase a hotel or the decision to acquire the majority stake in YouTravel, were (of necessity) taken jointly and could only be reached by consensus between them. The pursuit of the venture therefore required a high degree of co-operation between the two participants. They did not attempt to formalise the basis of their cooperation in any written contract but were content to deal with each other entirely informally on the basis of their mutual trust and confidence that they would each pursue their common project in good faith.”
“1. There must be no specific express terms in the contract that prevents a duty of good faith being implied into the contract. 2. The contract will be a long-term one, with the mutual intention of the parties being that there will be a long-term relationship. 3. The parties must intend that their respective roles be performed with integrity, and with fidelity to their bargain. 4. The parties will be committed to collaborating with one another in the performance of the contract. 5. The spirits and objectives of their venture may not be capable of being expressed exhaustively in a written contract. 6. They will each repose trust and confidence in one another, but of a different kind to that involved in fiduciary relationships. 7. The contract in question will involve a high degree of communication, co-operation and predictable performance based on mutual trust and confidence, and expectations of loyalty. 8. There may be a degree of significant investment by one party (or both) in the venture. This significant investment may be, in some cases, more accurately described as substantial financial commitment. 9. Exclusivity of the relationship may also be present.”
“If by "relational contract" it is clear that one means a relational contract of the kind described by Leggatt LJ in Sheikh Tahnoon and not all relational contracts in a broader sense, then there is no difficulty and the characteristics identified by Fraser J may assist to identify such a contract. But there is a danger in using the term "relational contract" that one is not clear about what exactly is meant by it. There is a great range of different types of contract that involve the parties in long-term relationships of varying types, with different terms and varying degrees of detail and use of language, and to characterise them all as "relational contracts" may be in one sense accurate and yet in other ways liable to mislead. It is self-evidently not all long-term contracts that involve an enduring but undefined, cooperative relationship between the parties that will, as a matter of law, involve an obligation of good faith.”
“A Stirling v Maitland term concerns non-compliance with a term of a contract by one party (here putatively P4U) which has been brought about by the alleged wrongful action(s) of the other. A Stirling v Maitland term is simply of no application in the present case, as P4U was not in breach of, nor was it prevented from complying with, any term of the EE Agreement.”
“Each party would provide the other with such reasonable cooperation as was necessary to the performance of that other’s obligations under or by virtue of the contract”
“A duty to co-operate in, or not to prevent, fulfilment of performance of a contract only has content by virtue of the express terms of the contract and the law can only enforce a duty of co-operation to the extent that it is necessary to make the contract workable. The court cannot, by implication of such a duty, exact a higher degree of co-operation than that which could be defined by reference to the necessities of the contract. The duty of co-operation or prevention/inhibition of performance is required to be determined, not by what might appear reasonable, but by the obligations imposed upon each party by the agreement itself.”
“We thought that there was a real risk that P4U might go into administration and that this may have significant consequences for EE. Our business plan projected EE trading with P4U positively up until at least the end of the current contract, which was due to expire in September 2015. This meant that sales of EE contracts through P4U were still a significant part of our future profit projections. If P4U went into administration, it would mean that EE would effectively lose a third of its retail presence overnight. In addition, in view of the cash prepayment mechanism in the P4U contract, we were conscious that we had to consider the consequences for our cash exposure going forwards.”
“EE does not want to create further financial exposure and increase P4U line of credit”
“• Important to avoid any supposition EE knew and link to signing CPW/DSG (even though such supposition is mistaken it could trigger enquires/investigation)”
“I found EE’s response and manner at the meeting to be incredibly formal and standoffish, which was entirely inconsistent with the prior engagements I had personally had with EE’s Senior Management Team. I remember it feeling like a really cold and strange meeting. We left without any resolution of anything.”
“Even if we were to account for much higher competitive bidding (notably on stores), it would appear more favourable to purchase assets rather than a full acquisition.”
“I do believe there is an opportunity for a smaller and restructured phones4U to come out of this situation in a way that is economically beneficial to EE, whether it is owned inside or outside your group.”
“in summary, they have secured handset supply for the next 3-4 months.”
“In relation to the Restricted Marketing Activities, please confirm that you will immediately take such steps as are necessary to comply with your contractual obligations on an ongoing basis, and explain by return what steps you have taken and will take to ensure compliance.”
“As you are aware we have internal processes in place to ensure that we monitor and comply with our obligation under clause 11.1 of the Agreement to maintain the Key Performance Indicators. Given the established lines of communication between us in relation to the KPI's we are surprised that you have chosen to send a formal reservation of rights letter without raising your concerns first through the usual channels. Had you done so you would have been reassured that we are monitoring the position closely and that we are confident that we will not be in breach of the Maximum Volume KPI for the quarter ending30 September 2014 . Please let us know why these concerns were not raised through the usual channels.”
“With regard to the points you make in relation to Restricted Marketing Activities we note that you do not set out any details of the concerns that you have. In order to enable us to respond on this point it would be helpful if you could provide us with such details as soon as possible.”
“P4U are less likely to enter Administration imminently than previously understood Main P4U trading challenge will be when Vodafone volume ceases It should be remembered Vodafone and EE will both be trading as normal in P4U until January 2015”
“1) Communicate outcome of Indirect strategic review Potential consequences • Provides transparency; removes any risk of misrepresentation • May trigger insolvency & EE not being able to trade with P4U as per current budget 2) Remain neutral Potential consequences • Withholding of critical information for P4U business/restructure creates a difficult environment and the risk of misrepresentation inadvertently increases • Risk increases over time of Dixon/CPW contract agreement leaking • P4U reforms and BT enters the Indirect market possibly with a quad-play offer”
“EE needs to be aware of risk of misrepresentation with Bondholders and Handset manufacturers” • Provides transparency; removes any risk of misrepresentation • May trigger insolvency & EE not being able to trade with P4U as per current budget • Withholding of critical information for P4U business/restructure creates a difficult environment and the risk of misrepresentation inadvertently increases • Risk increases over time of Dixon/CPW contract agreement leaking • P4U reforms and BT enters the Indirect market possibly with a quad-play offer” 738. The participants at the BRM discussed the situation for EE if P4u went into administration, including as regards financial liabilities and the potential for asset purchases. Mr Swantee told them: “If P4u enters administration tomorrow, we are prepared.”
“13.3A.2 The parties acknowledge and agree that, save as provided in Clause 13.3A.5, on the Event Date EE shall: (a) appoint CPW to be EE's sole Large Consumer Specialist Retailer in the UK; and (b) cease to procure any PAYM Connections and Upgrade Connections from a Large Consumer Specialist Retailer (via any routes to market of such Large Consumer Specialist Retailer in the Territory) other than CPW. 13.3A.3 For the avoidance of doubt, Clause 13.3A.2 shall not preclude EE from upgrading customers previously transacting via other Large Consumer Specialist Retailer's in EE Direct. … 13.3A.5 The parties shall review their respective readiness to trade in accordance with the terms of this Agreement from the Event Date not later than six (6) months prior to the Event Date and no earlier than1 December 2014 (the "Readiness Review"). In the event that during or prior to the Readiness Review EE provides to CPW notification that it has reasonable, clear and objective evidence that CPW is reasonably likely to be unable to accommodate the additional Connections and/or Upgrade Connections as provided for in this Agreement from the Event Date (the "Evidence"), EE shall provide such Evidence to CPW. Where EE has provided the Evidence the parties shall within 7 days of the date of receipt by CPW of the Evidence enter into good faith discussions to agree whether or not CPW is reasonably likely to be unable to accommodate such volume. If the parties are unable to agree a course of action within 10 Working Days either party may refer the matter to an independent arbitrator (the "Arbitrator") in accordance with Clause 13.3A.6. 13.3A.6 An Arbitrator to whom the matters set out in Clause 13.3A.5 are referred shall be appointed by the agreement of the parties within 5 Working Days or, failing agreement, by The President of the International Court of Arbitration. Each party shall provide or procure the provision of access to the Arbitrator of such information as is reasonably necessary and shall be entitled to make written representations to such Arbitrator concerning the matter. Any determination by the Arbitrator shall, save in the event of manifest error, be conclusive and binding on the parties. The Arbitrator shall make its determination within 30 days of having been appointed. Where the Arbitrator agrees with EE's findings, EE may (in its discretion) choose not to appoint CPW as its sole Large Specialist Retailer until such a date (i) the parties agree or (ii) that CPW can evidence to the Arbitrator that the Evidence has ceased to apply (and such date shall be deemed to be the Event Date).”
“The Company has concluded a contract with CPW, subject to shareholder approval, whereby CPW will become the Company's sole large specialist retailer in the UK for a period of 5 years. The contract covers both CPW's current routes to market and those which will form the CPW/DSG group following the merger of Carphone Warehouse Group plc and Dixons Retail plc.”
“EE signed a renewal with CPW, to give exclusivity to CPW from Oct 2015 (when contract with P4U ends)”
“I also did not understand the CPW deal to prevent a potential renewal of P4U.”
“On or around6 August 2014 , EE also agreed to enter into an exclusive agreement with CPW which had the effect of precluding EE from selling Connections through P4U upon the expiry of the EE Agreement.”
“Exclusivity was also something that was negotiated with CPW until quite late on. We were not prepared to grant total exclusivity to CPW, so the negotiation came down to exactly what profile of indirect retailer EE would still be allowed to supply alongside CPW. Whilst CPW were keen on restricting EE's ability to deal with other indirect channels as much as possible – as this would help CPW to deliver the increased volumes that they would be required to deliver to EE under the new contract – we were keen to maintain as much room for manoeuvre as we were able to negotiate. Ultimately, we agreed with CPW that from1 October 2015 , EE would not sell Connections via any other specialist indirect mobile phone retailer with more than 150 physical stores in the UK. This would mean that EE could not supply P4U in its current form, as P4U had significantly more than 150 new stores at that time ….”
“We wish to inform you that our Board has concluded that we will not be recommencing commercial negotiations with you as we have made a final decision not to replace or extend the terms of the Retail Agreement.”
“The meeting discussed the possible reaction scenarios of P4U to the CPW Contract, including the potential disappearance of P4U from the mobile market in the medium term. Olaf Swantee stated that the reaction would depend in part on the control and timing of the communications around the CPW Contract and asked all to keep the CPW Contract negotiations highly confidential.”
“From our perspective, an insolvency would be the best solution for the market.”
“Therefore, with Vodafone exiting, P4U was bound to fail unless O2 or Hutchinson (or another operator) stepped in as a “white knight”, which could have hurt EE commercially. So, P4U failing was better for EE than the only alternative possible.”
“The appointment of Rothschild suggests there is a possibility of restructure. In this scenario, my concern is that BT could move to take a significant share of P4U volume.”
“- ease of access for BT … quick action → close door. - restructure much smaller business w/ EE as anchor. - we need to announce…sooner or later. Sooner • PR → Voda/BC • Geared up for admin role • No time/effort • Voda equally disadvantaged by drop But – have we got killer blow?”
“The decision will leave the retailer with only EE as a full mobile network operator partner, although the future of that contract is also in question given a review taking place at the telecoms group.”
“an obligation to act honestly and with fidelity to the bargain; an obligation not to act dishonestly and not to act to undermine the bargain entered or the substance of the contractual benefit bargained for; and an obligation to act reasonably and with fair dealing having regard to the interests of the parties (which will, inevitably, at times conflict) and to the provisions, aims and purposes of the contract, objectively ascertained. In my view, this summary is also consistent with the English case law as it has so far developed, with the caveat that the obligation of fair dealing is not a demanding one and does no more than require a party to refrain from conduct which in the relevant context would be regarded as commercially unacceptable by reasonable and honest people: …”
“The standard of fair dealing or reasonableness that is to be expected in any given case must recognise the nature of the contract or relationship, the different interests of the parties and the lack of necessity for parties to subordinate their own interests to those of the counterparty….”