Cable & Wireless shares have slid 16% after the firm issued a profit warning.
Cable & Wireless said it was still optimistic about its profit outlook
The telecoms company said sales in the six months to September at its core UK business would fall 6% to £765m ($1.4bn) from £810m a year ago.
Cable & Wireless blamed "difficult" market conditions in the UK, where there is tough pricing competition.
Companies are having to offer better deals, as many clients are looking to shift from traditional fixed-line phone services to internet-based services.
Cable & Wireless shares dropped 22.50 pence to 119.25p in London, knocking almost £550m off the company's market value. Trading volumes were four times the usual daily levels.
'Level of deterioration'
The company's shares have rallied more than 20% over the past six months because the market was becoming more optimistic about the outlook for the firm's UK operations, analysts said.
Friday's announcement has dented those expectations and raised concerns that longer-term profit forecasts may be compromised.
"Whilst we are not surprised by the fact that UK trading is weak, the sheer level of deterioration surprises us," said Christian Maher, an analyst at Investec.
Cable & Wireless looked to play down concerns, saying that it still expected full-year earnings to be positive.
Cable & Wireless's overseas earnings - particularly in the Caribbean region - are helping to offset the problems in the UK market, the firm said.
"National telcos (telecom companies) continue to perform well and looking at the group as a whole, although UK trading conditions remain difficult, we expect a satisfactory outcome for the full year," the company said in a statement.
In August, Cable & Wireless agreed to buy business telecoms provider Energis for an initial £594m in cash.
The company said that earnings growth had slowed since it announced the deal and warned that approval for the purchase from the Office of Fair Trading might take longer than first expected.
The takeover will make C&W the UK's biggest telecoms network provider after British Telecom.