In its latest quarterly financial report, the retailer said that demand for pre-pay mobiles was hit by big cuts in the subsidies from mobile networks, as well as a lack of new smartphones being offered in the category and the tough economic conditions.
Like-for-like sales of pre-paid mobiles were down 4.7% at Carphone's European stores, while total connections were down 16.6%.
The British firm, which is the largest independent mobile phone retailer in Europe, estimates that the overall pre-paid market was down 35%-40% in the quarter.
However, Carphone Warehouse said strong mobile contract sales meant that it was likely to meet its financial target for the fiscal year, which closes at the end of Match 2012.
The company has also benefited from diversifying its product range, including sales of tablet computers and computer accessories.
It reported that non-mobile revenue grew by 15% in the quarter, although that only accounted for less than 10% of the firm's overall income.
Carphone said today that it now has 294 Wireless World stores across Europe, and is on-track to increase that to 375 by the end of March this year.
"CPW Europe has performed strongly on postpay sales and is now benefiting from the improved profitability of its new postpay commercial terms," said Carphone Warehouse chief executive Roger Taylor.
"In addition, we achieved 15% growth in our non-cellular revenues, with the sale of tablets and other devices accelerating. As expected, the pre-pay segment remains weak, with a significant decline in low-end prepay sales year-on-year.
"We remain well-placed to benefit from continued consumer enthusiasm for connected technology, and as such we are accelerating the roll-out of our Wireless World stores to meet this demand and deliver a strong service proposition that complements this segment of the consumer electronics market."
Virgin Mobile France, Carphone's mobile joint venture with Virgin Group, increased revenues by 15.3% to 109m euros (£91.2m).
The company expects full-year earnings at Virgin Mobile France to be up by 20-25%, while Carphone Warehouse Europe is expected to be up by 0-10%.
"In Virgin Mobile France we also continued to perform strongly in postpay, driving year-on-year revenue growth of 15%. The business is about to start operating as a full virtual network operator, transitioning its customers to its own SIM cards over the next 18 to 24 months," said Taylor.
"As with all retailers, we face a tough consumer backdrop, but our customers value our proposition and we are capitalising on the strong product cycle in smartphones and non-cellular categories, where we continue to broaden our range. With confidence in our future, we are reiterating our guidance for this year's Headline earnings."
Last year, Carphone Warehouse announced plans to close all 11 Best Buy-branded electrical goods stores in the UK, in a major revamp of its Best Buy Europe joint venture with the US retailer.
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