Carphone Warehouse earnings see sharp drop

UK mobile retailer and broadband provider Carphone Warehouse said on Thursday that its pretax earnings had fallen nearly 62 per cent to £14.1m for the first half of the year. The lower-than-expected profits are, said the firm, due to the escalating cost of building its broadband business.

Subscription connections rose 17.1 per cent to 1.82 million Carphone said.

Last month Vodafone said it would no longer use Carphone to sell its contract connections, shifting the business to the rival Phones4U retail outlet. Carphone sought to allay investor concerns following the move saying it maintained “relations” with Vodafone and that prospects for the firm were good.

In a statement the company said: “We see no change in the dynamics of the mobile phone market, with competition between players in the industry as strong as ever. We expect demand to be good over Christmas despite a tough comparable period.”

The company, which is engaged in a fierce battle for broadband customers with Sky and Orange, raised its interim dividend by 33 per cent to 1p a share. It also revealed that it is in talks with Vodafone to develop a pan-European framework agreement. Charles Dunstone, Carphone’s Chief Executive said: “It is intended that this agreement will encompass subscription and pre-pay connections, where appropriate.”

Carphone said its total number of mobile customers grew 34.4 per cent to 4.34 million during the first half of the year. Pre-pay connections surged 59.5 per cent to 2.28 million. Subscriptions increased 17.1 per cent to 1.82 million Carphone said. The company reported that by the end of September it had 516,000 customers on its voice and line rental services. 421,000 of those were also receiving broadband. However, by the end of October only 60,000 of its broadband customers had switched onto the firm’s own local loop loop which it is building across the UK.

Mark Newman, chief research officer at Telecoms.com’s parent, Informa Media and Telecoms, noted several reports suggesting Carphone posted a 60 percent rise in half-year profits. Newman said: “If you were to strip out the broadband business from its core mobile and residential telephony business then it is true to say that Carphone Warehouse’s profits have grown. However, there’s little point in stripping out broadband because it has invested real money in the project and is committing itself long-term to the broadband market. People should not underestimate the change in strategy that the broadband investment represents for Carphone Warehouse. It is effectively becoming a telco – albeit one that only instals infrastructure in local networks – and no one should underestimate how challenging it will be for the company to do this successfully particularly when it relies on the co-operation of a company (Openreach) which does not share its commercial ambitions.”