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"If these trends continue, we expect lower revenue growth this year than previously indicated, compensated by improved margins," said Charles Dunstone, speaking to the Financial Times, prompting a 10% fall in the share price of the company.

However, the company has performed well even with harsh market conditions, posting

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a 42% increase in profits for its residential business, which includes its broadband division.

The company also announced that it was keen to expand its broadband business, claiming that it was still in the short-list of companies bidding to buy Tiscali.

Reports in May suggested that it had been excluded from the auction because its £550 million bid fell short of the company's valuation.

As well as falling broadband subscriptions, Dunstone warned of a flagging European market for mobile handsets, claiming that the sector had been "flat or marginally down year-on-year."

Earlier this year a report from comparison site Top 10 Broadband suggested that rising numbers of customers for mobile broadband could see it overtake traditional connections by 2010.