Frustration dogs Carphone launch

Carphone Warehouse's pledge to shake up the home internet market was thrown into doubt yesterday when the company's website and phone lines struggled to cope with massive demand from the public.

Although the huge response to Carphone's offer of free broadband to customers who sign up for a £9.99 a month phone deal seemed to bode well, many were left frustrated.

Carphone's website was getting tens of thousands of hits a minute, a level of interest that stretched capacity. At one point the website said simply: "Service currently unavailable."

The company blamed BT. A spokesman said: "BT's system is not able to cope with the demand. We are taking 40,000 to 50,000 hits a minute. They can only deal with 4,000 hits a minute."

BT insiders were scornful of the suggestion that it was the telecom giant's fault. "They asked the world to watch them today, they should have made contingency plans," one insider said.

Callers to the 0800 049 1005 phone number yesterday afternoon were told "all our agents are currently on calls" and "we apologise for your continued wait". The problems could persuade some potential customers to stick with their current provider for fear of service interruptions if they switch.

Carphone is offering TalkTalk customers unlimited broadband, voice calls to landlines in the UK and 28 European countries for £20.99 a month (£9.99 plus £11 line rental). It is the free internet access that has really attracted attention, leading to talk of a price war in the sector.

BT said: "This is only 'free' if you pay them hundreds of pounds a year for other services. It is just a clever marketing ploy."

In a sign of the sort of day Carphone was having, a hotel where managers had gathered for a conference was evacuated when a faulty sprinkler burst. A text sent toThe Register website said: "700 managers, the biggest launch in CPW history ... one faulty fire sprinkler ... 10 people soaked and a hotel evacuated. Priceless."

Carphone Warehouse's shares fell 3.5p to 310p, along with much of the rest of the sector, as investors decided that a price war is likely to hurt profits.

Charles Dunstone, the founder, who holds one-third of the stock, acknowledged that switching internet provider can be "traumatic". But he insists his deal will make consumers happy. "The savings can eliminate the impact of every energy bill price rise this year. This is worth a holiday to many families in the UK," he said.

One telecom analyst said: "It is dependent on BT's willingness and ability to switch over the lines. They have to connect up Carphone's networks to the local exchanges and are already months behind on orders. BT's duty to its shareholders is to do the bare minimum required by the regulators."

The success of Carphone's business model relies heavily on BT switching the phone lines over from the ones it controls to the new lines that the mobile company is paying £60m to install. "They have to pull the switches," a Carphone spokesman confirmed. "They are aware of the problem and are addressing it."

Mr Dunstone insisted: "The regulator and BT have committed that this will be in place by July. I will chase them to the end of the world to get the money they owe me if they fail."

Carphone expects to make a £50m loss on the broadband deal this year, but hopes to turn this into an annual profit of £40m by 2008. It also pledges to complete the switchover from BT lines to its own - local-loop unbundling as it is called - by May 2007. The mobile phone company aims to have 3.5 million residential customers by March 2009. It was suggesting yesterday that this could be a conservative target.

Up to 70 per cent of the country should have coverage by 2007.

Given the website problems yesterday, it was hard for many people to discover if their postcodes allowed them to sign up immediately.