Strong demand for Carphone Warehouse's broadband offer means the retailer's initiative will cost it £20m more than originally expected.
Demand for the firm's broadband offer took it by surprise
The firm has had problems dealing with what it said was "unprecedented" consumer reaction to the new service.
It has received 625,000 applications for its integrated phone and broadband offer since April but 200,000 broadband customers still remain unconnected.
Costs relating to the offer are set to rise from £50m to £70m this year.
However, the firm said there would be no additional financial impact from the initiative in 2007-8.
The firm said it had improved its customer service after initial problems and that new broadband customers were now waiting five weeks, on average, to be connected.
"The unprecedented take-up of our free broadband offer means we have accelerated our customer service recruitment plans and incurred additional wholesale broadband costs," said chief executive Charles Dunstone.
But he added that the consumer response had been "exceptional" and first half-profits, excluding start-up costs relating to the broadband offer, were expected to be 50% higher than last year.
Launching its call and internet package in April, Carphone Warehouse said the offer would reduce typical residential bills by 60%.
It offered free broadband connections to people signing up to its £20.99 per month Talk Talk phone package, plus a one-off £29.99 connection fee.
The package offered unlimited local and national calls with broadband connection speeds faster than the industry average.
Demand for the service took the firm by surprise, with as many people seeking to subscribe in the first eight weeks as had been anticipated in the first four months.
The firm said it had made "significant progress" in improving its customer service but admitted that 204,000 people were still awaiting broadband connection and more than 100,000 people have yet to have their phone service set up.
"Our average call centre answering times are now among the lowest in the industry," Mr Dunstone said, while promising increased investment in customer service.
Carphone is one of a host of suppliers to offer competitive broadband packages in recent months as demand for the service soars.
Recent figures showed that nearly 75% of UK households with access to internet use broadband connections.