Broadband strategy pays off for Carphone

Carphone Warehouse, the mobile phone retailer and telecoms group, last night claimed success with its broadband strategy, saying the internet access business had started to fire profitability.

Pre-tax profits rose to £9.6m for the six months to September 30, compared with a loss of £4.7m in the same period last year. Revenue was £2.1bn, up 18 per cent.

The group's performance was fuelled by AOL's broadband business, which Carphone bought last December. But profitability was also helped by success with connecting broadband customers to its telecoms network.

Carphone's shares closed up 0.4 per cent at 357p after the company announced an interim dividend of 1.25p, up 25 per cent.

Carphone has been running up losses on many of its broadband customers because it has used a BT wholesale product to supply them with internet access.

Those customers only become profitable as Carphone connects them to its own network.

By September 30, 55 per cent of Carphone's 2.5m broadband customers were connected to its network.

Charles Dunstone, Carphone's chief executive, hailed the progress with broadband. "The economic model works and we are turning this into a profitable business."

He expressed confidence the company could hit its target of £220m-£225m for pre-tax profit, excluding amortisation and restructuring charges, in 2007-08. Carphone reported £56m of such profit in the first half, which underlines how its mobile retail business is skewed towards sales in the second half.

That business will be helped by Apple's much hyped iPhone, which goes on sale tonight.

Michael Williams, an analyst at Citigroup, said broadband would be the main factor in whether Carphone could hit the £225m profit target.

Mr Williams, who has a sell rating on Carphone, said the company had to connect more broadband customers to its network. It would also need to sign up more customers.

Carphone is the only one of BT's main rivals that is taking control of the former monopoly's landlines to supply phone and broadband services.

The risky strategy is known as local loop unbundling, and Carphone ran into severe technical difficulties last year when it began connecting broadband customers to its network. Those difficulties fuelled anger among customers.

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