Carphone Warehouse was punished by the market yesterday after the TalkTalk operator reported fewer-than-expected broadband connections and revealed a substantial spending programme.

Stock in Europe’s biggest independent mobile retailer tumbled to 228p, its lowest point since December 2005, before closing at 231p, an overall drop of 13.3 per cent or 35½p.

Charles Dunstone admitted that the company was experiencing “a slower consumer environment”. However, he added that the business was more robust than other areas of retail. “We are reaffirming guidance for the year just ended and the year ahead, which not too many retailers are able to do in the current environment,” he said.

In the broadband sector, Carphone added 109,000 customers in the last quarter, falling below analyst expectations of 128,000, to give a total of 2.7 million.

This year Carphone Warehouse expects to add another 400,000 broadband customers, with the aim of having 3.5 million by March 2010.

Mobile connection sales rose 12 per cent – to a total of 2.7 million – compared with a 19 per cent increase the same time a year ago.

Higher-value contract connections rose only 9 per cent to 1.1 million, falling 2 per cent below analysts’ predictions and fuelling fears that consumers are becoming less likely to splash out on expensive mobile phone plans. Mr Dunstone said that voice subscription growth was flat but that demand “for BlackBerrys and smart phones like the iPhone is good but not so much for flash voice phones”.

This year Carphone Warehouse plans 120 net new store openings and 200 resites and big refits. The store expansion and refit plan will contribute £45 million towards a substantial capital expenditure programme. Carphone Warehouse will also spend £85 million on its telecoms network infrastructure, £70 million on IT development and £20 million on other projects.

Overall, Carphone Warehouse said that profits remained on course for between £215 million and £220 million for the year ending March, falling slightly short of analysts’ expectations of between £220 million and £225 million.

Mr Dunstone hopes that his offers of free or subsidised laptops will beat the consumer slowdown and hopes to bring prices down to compete with high-end mobile phones. He said: “I think we have enough good things going on within our market place that can still drive connections.”

Carphone’s results coincided with a decision by O2 to slash the price of Apple’s 8GB iPhone by more than a third to £169. The £100 reduction is part of a limited offer until June 1 and comes after T-Mobile’s decision to reduce the price of the handset from £315 to £78 in Germany. The price cuts and reports that iPhone stock is running low and not being replenished in the United States, France and Britain have boosted industry speculation that the 3G version of the device could be released later this quarter.

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