Shares in Carphone Warehouse Group plc (London: CPW) plummeted by as much as 16 percent this morning, on news that mobile operator Vodafone Group plc (NYSE: VOD) is switching its retail sales contract to rival phone seller Phones4U. (See Vodafone Ditches Carphone and Vodafone Picks Phones 4U.)

Carphone Warehouse, which has branched out from running a retail chain to offer voice and broadband services of its own, saw its stock drop as low as 302 pence (down 58.25 percent), edging up during the day to close at 309.5 pence, or 14.09 percent. Carphone Warehouse’s share price had risen 9 percent yesterday with its acquisition of AOL (UK) Ltd. . (See Carphone Faces Broadband Hiccups.)

Under the exclusive agreement Phones4U, a mobile phone retailer recently acquired by private equity group Providence Equity Partners , will be the only third-party store chain to sell contract subscriptions for the Vodafone network. A statement from the operator indicates it’s going after "supply chain efficiencies" and Phones4u’s "excellent reach in the 16-34 year old market" with the deal.

Vodafone says it has brought all of its contract subscriptions back in-house and has invested £15 million in its own retail stores. With Carphone Warehouse becoming an increasingly important player in the service provider market, it may be looking like more of a competitor than a sales channel for the likes of Vodafone.

Analysts questioned the move given Carphone’s strength as a retailer; Ovum Ltd. analyst Jonathan Arber writes in a research note: "We have to question if the savings are really worth shutting out the current high-street leader, Carphone Warehouse, and thus greatly reducing potential contract sale opportunities."

Vodafone will continue to sell prepaid accounts through Carphone Warehouse, which said in its statement that it does "not expect there to be any impact on market forecasts for this or future years as a result of this change in commercial arrangements."

— Nicole Willing, Reporter, Light Reading