Allphones franchisees face uncertainty over sale

Mobile phone franchise Allphones is reportedly up for sale, 18 months after it was forced to pay $3 million in damages to franchisees for introducing a “no dickheads” policy.

Allphones, which started with a single store in South Australia 12 years ago, is now a 170-strong chain. Reports suggest the company could be sold for up to $100 million by the end of the year.

The sale is expected to attract the interest of private equity and telco giants Telstra and Singapore Telecommunications.

However, the company has been plagued by controversy over the last few years, namely in relation to the treatment of its franchisees.

In April last year, Allphones was ordered to pay $3 million in damages to 55 franchisees for engaging in unconscionable conduct, including the introduction of a “no dickheads” policy.

The policy, introduced in 2006, was designed to weed out underperforming franchisees and those identified as being disloyal to the company.

Allphones then employed a range of tactics to force undesirable franchisees out of its network, including withholding stock, stopping payments and threatening to terminate dealer agreements.

A total of 55 franchisees shared a $3 million payout after the Federal Court found Allphones and three of its executives – including former chief executive Matthew Donnellan – engaged in a campaign to bully dissenting franchisees to bring them into line.

Peter Kell, acting chairman of the Australian Competition and Consumer Commission at the time of the ruling, described the company’s treatment of the franchisees as “systemic and prolonged”.

“I can only imagine how a franchisee – caught on the wrong side of such policies, with their livelihood on the line – must have felt,” Kell said.

The Federal Court found Allphones had engaged in unconscionable conduct since 2004, when it commenced a national expansion plan at the direction of its board and Donnellan.

The franchise system was restructured to give the company control over the stock and income of franchisees.

This structure allowed Allphones to lure potential franchisees by telling them it was a like a “true partnership” in which they shared profit and bargaining power.

But the company negotiated commissions and bonuses with suppliers, without informing franchisees, and altered documents from telco carriers to disguise charges.

While it’s unknown what will become of the Allphone franchisees once the company has been sold, the events of the last few years are still fresh in their minds.

“It was a terrible period of our life and many franchisees lost homes and marriages because of the stress during that time,” one franchisee says.