Carphone Warehouse hit by broadband costs

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Carphone Warehouse on Monday said it would incur additional costs of £20m-£30m, leaving the company “a little behind our original business plan” but confident of catching up by summer, the company said in an unscheduled trading update.

Half the additional costs were incurred this year in broadband services, while development of the company’s relationship with US electronics retailer Best Buy, brand development and customer recruitment in France will cost a further £10m-£15m, the company said.

However, it said it was making “excellent progress” in migrating broadband customers on to unbundled lines and rolling out unbundled exchanges.

Last year Carphone Warehouse became a victim of its own success when its broadband offering attracted for more customers than expected, forcing it to take on hundreds more staff.

In January, Roger Taylor, chief financial officer, said he hoped 700,000 users would be migrated to unbundled lines by March. In Monday’s statement the company said 702,000 of its 2.27m broadband users had been migrated.

By the end of the financial year Carphone Warehouse also hopes that the scale of the customer base will have mitigated the extra costs of the broadband offering, limiting the additional costs to £10m-£15m.

The company is now in “advanced discussions” with Best Buy to put relations on a more formal footing after four months of collaboration with the US electronics retailer in the US and UK.

In the final quarter, ended March 31, subscription connections rose 14 per cent to 1.02m. The company said pre-tax profits would be in line with expectations, confirming guidance given after a strong Christmas trading period.

But analysts said the fourth-quarter year-on-year rise in total connections of 8.3 per cent was disappointing and could represent a like-for-like decline.

In early London trading, Carphone Warehouse shares were 1.2 per cent lower at 273.5p.

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