Carphone shares hit by cautious outlook

By Kate Holton

LONDON (Reuters) - Europe's biggest independent mobile phone retailer, Carphone Warehouse (CPW.L), is cautious about the year ahead due to falling broadband demand, it said on Thursday, hammering its shares down an initial 18 percent.

Carphone said the year had started well for its mobile retail business, with mobile connections in the first 10 weeks up 12 percent year on year, compared with its growth target of 8 to 10 percent.

But it said broadband net and gross additions were lower than expected due to the slowdown in the housing market and a strong performance in mobile broadband sales -- devices that can be used to access the Internet instead of a fixed line.

Its shares were briefly down 18 percent at 185 pence in early trading then recovered to be 6.3 percent lower at 9:28 a.m.

Shares in rival broadband providers were also hit. BSkyB (BSY.L) was down 1.3 percent and BT (BT.L) down 0.6 percent.

"The environment is difficult for everyone and everything at the moment," Finance Director Roger Taylor told Reuters, without giving any specific details on broadband numbers. "Our business model is as robust as we can be. (But) maybe people are thinking now isn't the time to sign up to something."

The group said, however, that churn, or the number of people leaving the service, was also falling and therefore it had not changed its financial guidance.

"If these trends continue, we expect lower revenue growth this year than previously indicated, compensated by improved margins," the group said of its fixed-line business.