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Carphone Warehouse 2Q Adds +19%, Broadband Slows

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LONDON (Dow Jones) Carphone Warehouse Group, the UK broadband and mobile phone provider, Wednesday said that it expects to report first half pretax profit in the range of GBP53 million to GBP56 million (USD108 million to USD114 million), after speeding ahead with plans to migrate customers on to its own internet network.

Europe's largest mobile phone retailer increased total customer connections ahead of consensus by 19.2% to 2.8 million, during the 13 weeks to Sept. 29., while adding 89,000 new broadband customers. Analysts had expected growth of 13.3%.

The FTSE-100 company, reporting its first set of figures since customers have been able to migrate from its "free" TalkTalk broadband package - launched 18-months ago - to other providers, said that it now had 2.5 million broadband customers, 55% of which are on Carphone Warehouse's own "unbundled" network.

The net number of Carphone Warehouse's broadband customer additions fell short of the 103,000 that analysts expected, however far more customers were migrated over to more profitable unbundled lines than forecast.

At 0712 GMT shares traded up 1 pence, or 0.4%, at 344 pence.

"After an excellent operational performance, we expect to report headline pretax profits of GBP53 million to GBP56 million for the first half, and are confident of the full year outlook," said Chief Executive Charles Dunstone, in a statement.

By migrating broadband customers onto its own "unbundled" network, rather than renting lines from incumbent BT Group, Carphone Warehouse says it can make a greater profit from the service. Unbundling is a process whereby internet service providers can get access to the local telephone exchanges, run by BT Openreach, and insert their own technology.

Carphone Warehouse unbundled 411,000 broadband customers during the second quarter, taking its overall unbundled customer base to 1.4 million.

"Over 80% of all new broadband customers are now connected directly to our own network. We are well ahead of schedule for migrating existing customers to our own network," said Dunstone.

Carphone Warehouse has received severe criticism in the last year for taking too long to switch new customers onto its broadband service, sparking fears among some analysts that subscribers may migrate to other providers once their contract expires. The company said that customer service unit costs have now fallen following improvements in this process.

The company, that recently won a deal to sell Apple's iPhone that will run on Telefonica O2's mobile network, said that it had grown the overall number of its mobile phone customers signing up to more profitable long-term contracts by 9.3% to 1.1 million.

However, analysts had hoped that subscription growth would be higher at a consensus figure of 14.1%. One analyst that declined to be named, said this could result from more competition from operators such as Vodafone Group, O2, Deutsche Telekom's T-Mobile and France Telecom's Orange, expanding their retail store networks.

-By Daniel Thomas, Dow Jones Newswires; 44-20-7842-9264; dan.thomas@dowjones.com

(END) Dow Jones Newswires

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