Carphone profits plummet as fears over business plan rise

2 Nov 2006

European telecoms service provider and mobile retailer Carphone Warehouse saw fiscal first half pre-tax profits plunge on the back of investments in its broadband business, and faces a struggle to convince investors of the viability of its business model. It has had great success with its own rollout of unbundled local loop (ULL) ADSL services, but the launch costs have been high. Despite this, last month Carphone agreed to acquire broadband rival AOL UK for GBP370 million, in a deal that will make it the UK’s third largest broadband provider, behind ntl and BT Group. However, the following day mobile operator Vodafone UK agreed to make Carphone’s high street rival Phones4U its exclusive post-paid services reseller sending the company’s shares into decline. Despite worries that other cellcos could follow Vodafone’s lead, Carphone remains optimistic. ‘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,’ it said in a statement.

Carphone posted a headline pre-tax profit of GBP59.3 million (USD113.1 million) for the 26 weeks ended 30 September, up from GBP37 million in the corresponding period of 2005, but net profit plummeted to GBP691,000, from GBP24.6 million a year earlier. Fiscal first half revenue rose 40% to GBP1.809 billion. Carphone had 421,000 retail broadband customers at the end of September, a figure which rises to more than two million if the customer base of AOL UK is included. Completion of the AOL deal remains subject to clearance by the EU Competition authorities, which Carphone says it expects to receive by the end of the year.

United Kingdom, TalkTalk