The decision came less than six months after RadioShack alleged that Deutsche Telekom AG's T-Mobile USA unit had "materially breached" their contract. The retailer also said T-Mobile's product offerings were not competitive with those of other carriers.

On Tuesday, RadioShack said Verizon Wireless, a joint venture of Verizon Communications Inc and Vodafone Group Plc, would provide postpaid and prepaid wireless products and services in more than 4,300 RadioShack U.S. company-operated stores starting September 15.

"That is actually a pretty big deal," Wedbush analyst Michael Pachter said. "Verizon is a pretty big partner. T-Mobile was a pretty small partner."

Verizon is "three times as big" as T-Mobile, Pachter said, adding: "If you, a customer, wants to activate a handset in a RadioShack store, there is more of you who are going to activate on Verizon than on T-Mobile."

Other industry watchers agreed.

"This trades the weak for the strong," Janney Capital Markets analyst David Strasser said.

The T-Mobile partnership has long been a drag on the retailer's profits and a cause of worry for analysts.

"RadioShack gave up a lot of compensation from AT&T and Sprint to carry T-Mobile, and this partnership doesn't appear to be panning out the way management expected," RBC Capital Markets analyst Scot Ciccarelli said in April.

The company also reported a drop in quarterly profit after weak consumer demand and cutthroat competition forced it to offer more margin-sapping discounts.

Net income fell to $24.9 million, or 24 cents a share, in the second quarter, from $53.0 million, or 41 cents a share, a year earlier.

Sales at the company, which was recently dropped from the Standard & Poor's 500 Index, fell to $941.9 million from $962.3 million in the year-ago period.

Analysts on average were expecting a profit of 37 cents a share, on sales of $1.03 billion according to Thomson Reuters I/B/E/S.

(Reporting by Dhanya Skariachan, editing by Dave Zimmerman and Maureen Bavdek)