Carphone (Sonus Customer)Third-Quarter Sales Gain on TalkTalk Service (Update6)
By Neil Craven
Jan. 12 (Bloomberg) -- Carphone Warehouse Group Plc, Europe's largest
mobile-phone retailer, said revenue gained 32 percent in its fiscal
third quarter, driven by demand for the company's TalkTalk fixed-line
and broadband service.
Sales climbed to 1.08 billion pounds ($2.1 billion) in the 13 weeks
ended Dec. 30 from 820.5 million pounds a year earlier, London-based
Carphone said today in a statement. Revenue from fixed-line services
more than doubled to 286.5 million pounds.
The company began offering free high-speed Internet with its fixed-
line phone services to lure subscribers from BT Group Plc and NTL
Inc. In October, Carphone raised its cost estimate for adding the
broadband service by 40 percent to 70 million pounds after signing up
more customers than it expected.
``They've proven to the market that, on the customers they've
migrated across, they make money,'' said Christian Maher, head of
research at Investec Securities. ``There is still clear execution
risk. I think in the end they'll get there.''
Retail revenue at the company, which had 2,070 stores across Europe
at the end of last year, increased 20 percent in the quarter and
represented 53 percent of the group total.
Shares of Carphone Warehouse rose 1.75 pence to 324.5 pence in
London, paring an earlier gain of as much as 4.8 percent after Morgan
Stanley sold 34 million shares, or 3.9 percent of the stock. The
shares were sold for 324 pence to 327 pence each, traders familiar
with the transaction said.
Unbundling
Finance Director Roger Taylor said the sale wasn't on behalf of a
company director. Chief Executive Officer Charles Dunstone owns 33
percent of the stock, while David Ross, with whom he founded the
company in 1989, holds about 22 percent.
The retailer and telecoms service provider is putting its own
equipment into BT telephone exchanges, a process known as local loop
unbundling, to increase profitability. By the end of the quarter, 569
exchanges were ``unbundled'' and a further 52 were added with the
acquisition of Time Warner Inc.'s AOL Internet access unit, agreed in
October.
About 100 exchanges will be unbundled a month, pushing the total to
about 1,000 by the end of April, Taylor said. He said that was
``slightly ahead'' of schedule.
Carphone said the number of TalkTalk broadband subscribers rose 20
percent to 632,000. That compares with the previous quarter's 86
percent gain. About 132,000 users are connected through the company's
own exchanges. The AOL acquisition increased the total number of
broadband customers to 2.16 million.
Broadband Aim
The slowdown in broadband subscriber growth ``may disappoint,''
Credit Suisse analyst Assad Malic said today in an e-mailed note to
investors. ``This is more in our view a conscious decision by
Carphone to focus on maintaining a level of provisioning and customer
service.''
Carphone plans to grow total broadband subscribers to 2.3 million
this fiscal year, including about 750,000 through TalkTalk, Finance
Director Taylor said in an interview. The company wants to add as
many as 20,000 subscribers a week, CEO Dunstone told analysts on a
conference call.
Revenue from U.K. residential fixed-line customers more than tripled
in the quarter to 173.5 million pounds.
Dunstone said he expects full-year earnings to be ``in line with
current market expectations.'' The consensus estimate is for pretax
profit of about 120 million pounds, after the cost of broadband and
10 million pounds related to the establishment of Virgin Mobile
France, a joint venture, Taylor said.
Vodafone Contract
Third-quarter sales at stores open at least a year rose 7.3 percent
as the company connected 3.26 million more people to mobile networks,
a 19 percent increase. Total revenue was boosted by a net increase of
149 in shop numbers.
Vodafone Group Plc, the world's largest cellular-phone company, in
October chose competitor Phones 4u as its sole third- party mobile-
phone vendor for U.K. network contracts. Vodafone has already given
back about 40 percent of the business it withdrew from Carphone,
allowing the retailer to upgrade handsets for existing customers,
Merrill Lynch & Co. said last month.
``I suspect it was a one-off,'' said Investec's Maher, according to
whom the Phones 4u contract was for 12 months and relates only to new
contracts, not Vodafone contract renewals.
``I'd be very surprised if other operators follow suit because the
strength of the proposition in the U.K. for Carphone is so strong
that the operators can't ignore it,'' Maher said.
To contact the reporter on this story: Neil Craven in London at
ncraven1@... .
Last Updated: January 12, 2007 11:48 EST |
