Carphone broadband growth hit by property slowdown

Carphone Warehouse has halved its predictions for the growth of its broadband business this year, blaming slowing consumer spending and the contracting housing market.

The UK's second biggest high speed internet provider has revised its original expectations of 400,000 new customers down to between 200,000 and 250,000, and is anticipating revenues from the division to be broadly flat. The company, which has 2.8 million broadband subscribers to its TalkTalk service, added just 41,000 customers in its first financial quarter, compared with rival BSkyB's net broadband additions of 200,000 in its most recent quarter.

Charles Dunstone, the Carphone Warehouse chief executive, said: "As we indicated in June, growth in broadband customer numbers slowed during the quarter. One of the benefits of the current environment is that churn is low and falling, making our relationship with customers increasingly valuable. While the second quarter has started well, with a sharp pick-up in subscription connections on the back of the iPhone 3G launch, we remain understandably cautious about the consumer environment."

Carphone's retail business remained broadly on track with revenues up by 10 per cent to £498m, although like-for-like revenues fell by 1.4 per cent. But retail gross profits were up 1.7 per cent on a like-for-like basis, with total mobile connections up by 12 per cent to 2.6 million and mobile subscriptions up by 9 per cent to 1.1 million. "Connections volumes have continued to grow well, driven by smartphones and mobile broadband sales," Mr Dunstone said. "Our market share in these segments has been strong. However, margin per connection was a little weaker with the shift in mix towards mobile broadband."

Trading is more difficult in the fixed line business. Residential telephony revenues remained flat at £268m, although partially offset by growth in broadband and predicted declines in the voice-only service. Business customer revenues dropped by 4 per cent year-on-year – which the company blames on the shift away from low margin business to premium corporate traffic.

The group's shares closed down 3.5p at 189p.

Carphone is undergoing a transformation after the £1.1bn joint venture with Best Buy, the US retail giant, agreed at the end of June. Carphone's retail distribution business will be spun out to form a new company, owned 50-50 by Carphone and Best Buy. The joint venture will put together a network of "big box" consumer electronics shops. The first are expected to open in Europe in October, and in the UK in 2009.

Best Buy Mobile, the joint venture set up in 2006 to sell Carphone products in Best Buy's US stores, is expected to make a positive contribution to Carphone's earnings in the current financial year, ahead of schedule.