The Carphone Warehouse Plc, the UK’s third largest internet service provider and Europe’s largest mobile handset retailer, has warned that it will incur greater costs associated with its broadband offering.
During a fourth-quarter trading update, the London, UK-based ISP said that mobile phone subscription connections rose 14% in the period ending March 31 to 1.02 million. Total group connections rose 8.3% to 2.41 million, while its broadband subscriber base rose to 2.27 million compared to 2.16 million at the end of 2006 (spread across its TalkTalk and AOL operations).
In April 2006 Carphone sparked a price war with its offer of a free broadband connection bundled in with a fixed-line call plan costing 19.99 pounds ($39.57) per month. However, Carphone’s infrastructure was quickly swamped by the huge demand, forcing delays and numerous complaints about its lack of call center capacity.
Carphone went on a recruitment spree in the second half of 2006 to improve its call center numbers, but chief executive Charles Dunstone admitted on Monday during a conference call with journalists that the company was now too heavily staffed in this area.
We have more people doing customer service than we should do, said Dunstone. We hired too many last Autumn, but we are not recruiting at the same rate now. Carphone said it expected to incur additional broadband customer service costs of 10m pounds ($19.8m) to 15m pounds ($29.7m) for the year. Customer service continues to improve but it still needs to improve further, he said. I guess we have dragged ourselves up to the bad levels of the rest of the industry.
Carphone is also still experiencing problems as it has not moved enough of its customers onto own LLU (local loop unbundling) network. Currently Carphone has just 702,000 of its 2.27 million broadband customers using unbundled connections, including 327,000 customers that it acquired when it purchased AOL UK for 370m pounds ($686m) last October.
This means that the remaining 1.56 million Carphone customers are using BT’s wholesale product (IPStream), which is costing Carphone a modest loss per customer each month.
In an effort to expand its network, Carphone has been installing its own LLU equipment in telephone exchanges. Its target was to have unbundled 1,000 exchanges by May 2007, but Dunstone said that it now has 1,024 unbundled exchanges by the end of March.
We continue the momentum in moving people to LLU, said Dunstone.
Carphone said that full-year pre tax profits are expected to be inline with current market expectations. We had a very good end to the year which puts us in a good position for the year ahead, Dunstone said.
Meanwhile, the company also said that it would incur costs of 10m pounds ($19.8m) to 15m pounds ($29.7m) in joint venture start-up costs. This is because Carphone is advanced discussions with the US-based electronic retailer Best Buy Co Inc for further development of Best Buy Mobile in the US and Geek Squad in the UK.
Best Buy is a US retailer of consumer electronics, PCs, entertainment software and appliances. Best Buy Mobile is a US venture with Carphone, whereby the UK ISP and handset retailer has concessions to sell mobile phones in nine Best Buy stores located in the New York area.
Geek Squad on the other hand is a home service for people experiencing problems with their broadband connection, wireless network, or hardware and software problems. It is well established in the US, but Carphone is launching the service in the UK as a separate entity.
Carphone also plans further investment in brand development and customer recruitment for its French mobile joint venture, Virgin Mobile France, but did not expand on how much this would cost.