The cost of launching its free broadband service has pushed Carphone Warehouse into the red, the firm making a £4.6m loss in the past six months.
Carphone said it expected strong demand over Christmas
Demand for the service, launched in April, was much higher than anticipated and Carphone has struggled to cope with connecting customers.
The firm incurred a £45m loss relating to the launch of the service in the six months to the end of September.
But excluding this and other one-off costs, profits rose 60% to £59.3m.
Carphone said the launch of its TalkTalk integrated broadband and phone offer had been "highly successful".
It has received 625,000 applications for the service, but about 200,000 broadband customers still remain unconnected.
The company was forced to take on more staff to handle requests for the service after admitting that its initial handling of calls was inadequate.
Total losses relating to the launch are set to rise to £70m this year.
Carphone made a £32.5m profit in the corresponding period last year but it said its heavy investment in the service, plus its recent acquisition of the UK arm of internet business AOL for £370m, had built the foundation for its future growth.
"With the launch of the free broadband and the subsequent acquisition of AOL, TalkTalk has reached critical mass as the number three provider of voice calls and broadband in the UK," said chief executive Charles Dunstone.
Carphone Warehouse said it was also talking to Vodafone about how it sold the company's mobile phone subscriptions across Europe.
Vodafone recently revealed it was giving rival retailer Phones 4U the exclusive right to sell its monthly phone contracts in the UK.
Carphone's relationship with Vodafone is under scrutiny
The latest discussions focus on delivering a consistent sales proposition for sales of subscription and pre-pay services across Europe.
Carphone's shares fell 2% in morning trading as analysts expressed concern about the cost of broadband entry and its impact on the firm's relationship with mobile phone networks.
"While Carphone is well positioned in terms of broadband scale following the AOL acquisition, integration issues could prove a distraction as it continues to deal with demand for TalkTalk free broadband," said Richard Ireland, UK head of telecoms at Ernst & Young.
"Although talks with Vodafone over a pan-European agreement are a positive, uncertainty remains over the company's relations with mobile operators going forward."