Carphone Warehouse has snatched 2.1 million new customers by buying AOL UK, but questions remain about its existing TalkTalk business.

Carphone Warehouse beat off rival BSkyB in agreeing to buy AOL UK for £370 million (US$688m), getting 1.5m broadband customers and 600,000 on dial-up with it. The deal consists of £250m in cash up-front, with the balance paid in three further instalments over 18 months.

Carphone Warehouse chief executive and founder Charles Dunstone said: "This deal gives us significant scale to complement the rapid organic growth of our free broadband proposition. In addition, the joint development of AOL's already successful audience platform will bring us new advertising and content revenues.”

But given that the company appears to have hugely underestimated the costs and complexity of getting an integrated telecoms and broadband operation off the ground, it remains to be seen whether the AOL acquisition is ill founded.

The AOL operation will be kept separate from TalkTalk, retaining the former’s brand and charging scheme, according to third-party reports.

AOL users might view this as small mercy. Carphone also published figures today showing a £70m loss – £20m more than expected – from its attempts to provide "free" broadband to the 625,000 people who signed up for TalkTalk since its April launch. Since then, large numbers of customers have complained regarding poor service, with customers reportedly waiting up to two months for a broadband connection.

According to company’s second quarter trading update, of the 625,000 customers signed up for Talk Talk’s broadband service, only 421,000 have so far been connected. Given that only 20,000 of these are fully "unbundled" from incumbent BT at local exchange level, this means that the company has been paying BT rental for 400,000 connections, losing money on each one. Meanwhile, 200,000 customers have no service yet at all.

Disgruntled customers report that TalkTalk's operations in particular are poorly integrated, with staff tasked to wholesale broadband unable to deal with LLU (local loop unbundling) problems, and vice versa.

To date, TalkTalk has only managed to unbundle 370 exchanges, with 470 still being processed from a total of 1,000 it wants to get up and running.

The company recently and quietly withdrew its all-on-one broadband/calls/line rental offer from some parts of the UK, and now charges a £10 fee for broadband in these areas.