Broadband costs clobber Carphone Warehouse

Roger Taylor, finance director, Carphone Warehouse
 
First-half profits at Carphone Warehouse fell sharply due to the escalating cost of building up its broadband business.

Pretax earnings dropped 62% £14.1m for the half-year to the end of September. But excluding the investment in broadband and its joint venture at Virgin Mobile France, Carphone Warehouse said pretax profits would have risen by the same proportion to something over £59m.

Sales were up 40% at £1.8bn.

The stock market wasn’t too unhappy with the numbers; CPW’s shares rose on the news that it is trying to repair the fractured relationship with Vodafone – the two are talking about a possible deal covering both contracts and prepay the UK.

“We jointly agreed that our well-documented spat was crazy … and that we were better friends than enemies,” finance director Roger Taylor told a news service. “We really should have had conversations 12 or 24 months ago … on how we would both benefit from working more closely across Europe.”

Half of Carphone Warehouse’s 1,900-plus stores are outside the UK.
The broadband side is expected to clock up losses of £70m this year, not including the recent £370m takeover of AOL’s UK internet business.

By the end of October, only 60,000 of the 420,000 or so subscribers signed up to broadband had been moved on to Carphone Warehouse lines. For the rest of them, CPW has to rent connections from BT at a cost of £5 per customer each month.

Clearly the retail business is performing well. The total number of customers grew by a third to hit 4.3m; prepay accounted for 2.3m of them, and that side was up nearly 60% on a year ago. The more profitable contract business increased 17% to 1.8m customers.

There’s a possible cloud on the horizon; The Times has reported that Orange is also reviewing its sales strategy for next year, and this could mean that Carphone Warehouse loses another network. Clearly all the operators are concentrating their energies on direct business, but Carphone’s broadband ambitions also takes them into head-on competition.