By Marcus Leach

The UK pre-pay mobile phone market dropped by between 35-40% in the final quarter of 2011, according to Carphone Warehouse.

Despite the drop the phone firm believe their contract sales will enable them to meet original full-year profits.

The company said demand for pre-pay mobiles was hit by cuts in the subsidies from networks, a lack of smartphones offered in this category, and a weak consumer environment.

The firm said sales at European stores open for more than a year fell 4.7%.

"CPW Europe has performed strongly on postpay sales and is now benefiting from the improved profitability of its new postpay commercial terms. In addition, we achieved 15% growth in our non-cellular revenues, with the sale of tablets and other devices accelerating. As expected, the prepay segment remains weak, with a significant decline in low-end prepay sales year-on-year." Roger Taylor, CEO, said.

"We remain well-placed to benefit from continued consumer enthusiasm for connected technology, and as such we are accelerating the roll-out of our Wireless World stores to meet this demand and deliver a strong service proposition that complements this segment of the consumer electronics market.

"In Virgin Mobile France we also continued to perform strongly in postpay, driving year-on-year revenue growth of 15%. The business is about to start operating as a full virtual network operator, transitioning its customers to its own SIM cards over the next 18 to 24 months.

"As with all retailers, we face a tough consumer backdrop, but our customers value our proposition and we are capitalising on the strong product cycle in smartphones and non-cellular categories, where we continue to broaden our range. With confidence in our future, we are reiterating our guidance for this year's Headline earnings."

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