Shares in UK mobile retailer Carphone Warehouse took a dive Thursday after Vodafone announced it would be dropping the company as a retailer for contract subscriptions.

Instead Vodafone has signed up Phones 4U as an exclusive third party retailer for Vodafone contract customers on the UK high street.

Vodafone said it aims to benefit from supply chain efficiencies through the deal. During the last two years, the UK-based mobileco has built up its direct channel capability and taken over the management of 100 per cent of existing contract customers. The firm is also investing £15m in a retail store optimisation programme designed to increase customer loyalty. Vodafone will have optimised 100 stores by April 2007, the company said.

Churn has been steadily increasing at the operator for the past couple of years reaching 32.8 per cent at the end of June.

Phones 4u currently operates 384 stores in the UK and has plans to expand to 450 by mid 2007.

On the back of the news, shares in Carphone Warehouse spiralled by 12.7 per cent, contrasting an investor high on Wednesday when the retailer announced plans to acquire AOL’s UK internet arm.