Carphone Warehouse reported a 9.5 per cent fall in pre-tax profits today after paying out £60.3 million for the troubled launch of its free broadband service that will set the company back a further £15 million in the current financial year.

Pre-tax profits fell from £136 million to £123.1 million for the year to March 31, 2007, impacted by £80.5 million of start-up costs.

Most was spent setting up Carphone Warehouse's free broadband service through its TalkTalk brand, but a quarter went on the launch of a joint venture with Virgin Mobile in France.

Carphone Warehouse also announced today that it was cutting line-rental costs for all its voice-only customers from £11 a quarter to £10.50, after BT said last week that it was introducing a number of price reductions including reducing its own line rental costs from £11.00 to £10.50.

Since Carphone Warehouse launched its broadband service, Ofcom, the industry regulator, has received a number of complaints from customers about poor service.

Carphone Warehouse appeared to lay at least some of the blame with BT's Openreach division, which was charged with transferring customers over from its own network to Carphone Warehouse.

Carphone said: "Initially, progress was slow and the high numbers of errors resulted in a very poor customer experience."

As well as migration costs, the company said that it had to take on more staff to deal with customer complaints and new users, and continuing costs would set it back between £10 million and £15 million this year.

Carphone Warehouse said that it now has 700,000 using the service with average monthly spend of £28.

The company boosted its customer base last year when it spent £380 million on buying AOL's UK internet access business.

The broadband problems overshadowed an otherwise strong set of figures, with overall revenue up 31 per cent to £3.9 billion while earnings before interest, tax, depreciation and amortisation rose from £242.4 million to £293.9 million.

Shares rose by 5 per cent, or 15.25p, to 318.75p in early trading.

Like-for-like retail sales, a figure that does not include revenue from stores opened during the year, increased by 6.6 per cent, while comparable gross profit rose by 5 per cent.

Revenues from its distribution business, which includes its retail outlets, increased by 20.8 per cent to £2.1 billion and subscription connections rose by 17.3 per cent to four million.

Carphone Warehouse said today that its joint venture in the US with Best Buy, an American consumer electronics retailer, had been successful and that it was expanding the partnership to between 150 and 200 stores over the next 18 months.

Cash rose by 30.5 per cent to £256.3 million and the company announced that it would pay a final dividend of 2.25p, taking the total for the year to 3.25p, an increase of 30 per cent.

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