Carphone bullish despite broadband slowdown

Carphone Warehouse saw a sharp slowdown in the growth of its broadband business at the end of last year, with new subscribers growing by just 20 per cent in its third quarter compared with more than 80 per cent in the three months before.

The news was the only blip in an upbeat trading statement from the mobile phone retailer yesterday, which saw it report a 3 per cent growth in like-for-like gross retail profits for the quarter, on the back of a 7.3 per cent growth in like-for- like revenues.

The group said it was on track to meet analysts' full-year profit forecasts, and was bullish about prospects for the year ahead, claiming the market continued to favour its "impartial model and brand strength".

Carphone now has some 2.2 million residential broadband customers, of which 540,000 have joined since it introduced its free package for Talk Talk customers last summer. Last year, the company acquired AOL's UK broadband and phone businesses, increasing its subscriber base by more than 1 million.

"The completion of the AOL deal makes us the clear number three player in the UK broadband market with 2.2 million residential broadband customers, giving us the scale we need to deliver significant profitable growth in the medium term," said Charles Dunstone, the company's chief executive. "Our immediate focus continues to be on improving our processes and customer service."

The group said it was also making good progress in getting its phone customers on to its own unbundled lines. The unbundling process sees the firm put its own equipment into BT exchanges, and allows the company to continue increasing its profitability. By the end of 2006, it had unbundled 569 exchanges, and is unbundling others at a rate of about 100 a month.

Roger Taylor, the finance director, brushed aside concerns about the slowdown in broadband subscriber growth, sayingthe focus was to get more customers on to unbundled lines.

Analysts at Credit Suisse said the results were good, but that there was an element of concern over the slowdown in broadband subscriptions. A note published by its telecoms team yesterday said: "Whilst investor concerns over weak overall retail market demand should be allayed by this morning's update, with stronger than expected total connections and like-for-like growth, the slowdown in subscriber acquisition growth within the free TalkTalk broadband division may disappoint."

Outside the UK, the group saw strong performance in its new French joint venture with Virgin Mobile, reaching almost 380,000 customers in just nine months. Mr Dunstone said the company's US joint venture with Best Buy had also made a "promising start".

Shares in Carphone closed up 1.75p at 324.5p, giving the company a market value of £2.9bn.