Top U.S. electronics chain Best Buy Co is buying its British partner out of a fast-growing U.S. mobile phone joint venture for $1.3 billion and scrapping plans for a chain of European megastores.

The moves are the latest sign Best Buy is scaling back its overseas ambitions to focus on its main U.S. business, which faces stiff competition from discounters and online retailers. Earlier this year, the U.S. group dropped plans for Best Buy-branded stores in China and Turkey.

The decisions also underscore the gloomy outlook for European retailers as consumers there grapple with rising prices, subdued wages growth and government austerity.

Best Buy said on Monday it would buy out Carphone Warehouse from their Best Buy Mobile venture in the United States and Canada, which has benefited from soaring demand for smartphones like Apple Inc's iPhone.

For Best Buy to be able to no longer have to share 50 percent of the profits of a high-margin, fast-growing business with Carphone Warehouse, from my perspective, is a real positive, said BB&T Capital Markets analyst Anthony Chukumba.

(But) it is not a game-changer. Best Buy still has the same challenges they did 24 hours ago -- fairly weak product cycle particularly in flat-panel TVs, increasing competition from Amazon, probably too much retail square footage.

Best Buy shares were down 3.3 percent at $26.40 on Monday afternoon, while Carphone shares closed up 0.9 percent at 348 pence on the London Stock Exchange.

The deal gives Best Buy more flexibility to use employees in its U.S. mobile phone stores to sell more than just phones, CEO Brian Dunn told Reuters in an interview.

What this deal allows us to do now is to extend that out across tablets, and notebooks and smart TVs and on and on and e-readers and all the portfolio of goods we sell.

The deal will also help the brick-and-mortar retailer differentiate itself from online-only chains such as Amazon.com by focusing more on customer service, Dunn said.

This moves Best Buy more toward a service model, said Larry Haverty, associate portfolio manager of Gabelli Global Multimedia Trust, which owns shares of Best Buy. They have already been making moves toward that with Geek Squad.

Some were more skeptical. Analyst Brian Nagel of Oppenheimer worried that the investments might compromise Best Buy's ability to buy back shares in the near term.

On Monday, Best Buy also said it agreed to buy service provider Mindshift Technologies for $167 million in a bid to expand into the cloud services segment and cater to small and mid-sized businesses.

A GOOD DEAL FOR CARPHONE?

Along with Best buy buying out Carphone's stake in the U.S. venture, the two companies on Monday also announced a new venture aimed at replicating Best Buy Mobile's success in emerging markets.

Barclays analysts said Carphone was getting a good price for the U.S. stake, with the 838 million pound ($1.3 billion) deal worth more than the entire equity valuation of the British group when it was demerged from telecoms arm TalkTalk last year.

Carphone said it would return proceeds from the deal to investors, giving a big windfall to founder Charles Dunstone.

Dunstone, who owns about 29 percent of Carphone Warehouse according to Reuters data, has been praised by investors for striking his initial deal with Best Buy in 2008, shortly before a plunge in equity market valuations.

Best Buy said taking full control of Best Buy Mobile and closing British megastores would add 35-40 cents a share to fiscal 2013 earnings. The one-off cost of both actions, plus a noncash impairment to write down goodwill, was $2.6 billion.

Best Buy bought 50 percent of Carphone's retail operations for about $2.1 billion in 2008 to tap the British firm's expertise in mobile phones and to act as a springboard for expansion across Europe.

While the U.S. mobile phone business has exceeded expectations, the plans for a chain of European megastores have been hit by weak consumer spending, low brand recognition and competition from incumbent players such as Dixons.

Best Buy and Carphone also said on Monday said they would close their 11 Best Buy-branded stores in Britain at a cost of about 65 million to 75 million pounds, but expected to redeploy most of the 1,000 or so staff.

Only three years ago, when the two firms announced plans for the megastores, they promised a chain of up to 100 outlets in Britain that would then sweep across Europe.

Best Buy, which is shrinking its U.S. megastores in the face of stiff competition and weak consumer demand, said it would focus in Europe on Carphone's existing smaller format stores -- their Best Buy Europe business.

The two also unveiled a venture aimed at replicating Best Buy Mobile's success in emerging markets.

Carphone Chief Executive Roger Taylor said the firms had learned from the mistakes of the British megastores, and would center the new venture, called Global Connect, on a smaller, fast-growing part of the electronics market and would work with local partners to tap their expertise and reduce costs.

The initial focus would be China, where Global Connect plans to introduce outlets into the 200 or so stores of Best Buy's local partner Five Star. Standalone stores could follow, Taylor told Reuters in a telephone interview.

Best Buy and Carphone also formalised their relationship over Best Buy Europe, saying Best Buy would have the right to buy Carphone's 50 percent stake from March 2015 and that, if it did not do so, Carphone would have the right to buy Best Buy's stake at a 10 percent discount to fair market value.

(Reporting by Mark Potter in London and Dhanya Skariachan in New York, editing by David Holmes, Sophie Walker and Matthew Lewis)