The assault of "free broadband" offers led by Carphone Warehouse threatens to hit BT, City analysts warned today, with the former telecoms monopoly suffering a sharp slowdown in high-speed internet connections.

BT's key performance indicator figures released alongside solid first-quarter results showed net new connnections of wholesale broadband totalled 300,000 in the first quarter, down from 700,000 in the previous quarter.

Net new retail broadband customers dropped from an average of 250,000 in previous quarters to just 158,000.

In contrast, Carphone said today that demand for its TalkTalk package, advertised as offering "free broadband", exceeded both its own expectations and those of the City.

The group has signed up 476,000 users for its broadband bundle, although only 247,000 customers are live users of the service.

JP Morgan analysts said in a note this morning: "Rather than a slowdown in broadband demand [at BT], this is likely to reflect the impact of customers anticipating new aggressive offerings from Carphone Warehouse and others."

The broker added: "We believe that BT has to lower broadband prices quite aggressively, both wholesale and retail. ... concerns over profit sustainability beyond this financial year are likely to gain weight, and would advise to take profits."

Analysts are expecting BT to come out fighting in the second quarter with its Total Broadband campaign which was launched on June 21.

Net profits of BT for the three months to June 30 rose 19 per cent to £464 million on revenue up 3 per cent at £4.86 billion.

Revenue from information technology and other "new wave" services including broadband jumped 18 per cent to £1.64 billion, accounting for more than a third of group sales.

Revenue from BT’s traditional business fell 4 per cent.

Analysts also voiced concern over BT's Global Services unit. The divisions 12-month rolling order book stood at £4.1 billion - down from £5.2 billion in the forth quarter of last year and £7.2 billion this time last year.

Chief executive Ben Verwaayen said the figures represented a "strong all-round performance ... revenue has increased for 10 consecutive quarters."

Carphone posted a 42 per cent rise in first-quarter revenue to £857 million. It did not give a total net profits figure in the trading update but said that retail gross profit was up 30 per cent or 6.8 per cent on a like-for-like. Around 60 per cent of Carphone's profits now come from outside its retail business.

For the 13 weeks to July 1 total connections rose 34.8 per cent to 1.96 million, with mobile connections up 18 per cent.

Shares in Carphone were down 2.3 per cent or 6.5p in morning deals to 279p. To track the stock click here.

Shares in BT were down 1.25p or 0.5 per cent at 236.25p. To track the shares click here.

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