UPDATE 3-Carphone Q2 tops forecast, sees lengthy recovery

* Sees 12-18 months of current consumer conditions

* TalkTalk broadband subs up net 77,000 vs 41,000 forecast

* Best Buy Europe connections up 2 percent, above forecast

* Reiterates guidance and demerger by end of March

* Shares hit 16 month high

(Adds FD, analyst comments, detail, background, shares)

By Mark Potter

LONDON, Oct 8 (Reuters) - Carphone Warehouse (CPW.L), Europe's biggest mobile phone retailer, signed up more customers than expected in its second quarter, but joined other retailers in playing down hopes of a rapid recovery in consumer spending.

"We see this current consumer environment potentially sustained for another 12 to 18 months," Finance Director Roger Taylor told Reuters on Thursday.

"The worst seems to be over ... but there's not much grounds for there to be a huge upturn in the economy either," he said, pointing to rising unemployment and the prospect of tax hikes.

Europe's retailers have generally coped with the recession better than analysts had feared. But groups like Kingfisher (KGF.L), the region's number one in home improvements, and Tesco (TSCO.L), the world's third-biggest retailer, have warned a recovery is likely to be slow. [ID:nLH409339] [ID:nL5512187]

Retail sales in the European Union fell 0.3 percent in August from July. [ID:nL5671566]

Carphone, Britain's second-biggest broadband provider behind BT (BT.L), said it added a net 77,000 broadband subscribers to its TalkTalk telecoms unit in the second quarter of its fiscal year, above a forecast of 41,000 in a company poll of analysts, boosted by its focus on the low-priced end of the market.

Its recently acquired Tiscali UK business lost a net 62,000 broadband subscribers, which Carphone said was in line with its expectations. The firm said it would receive a rebate on the originally agreed deal because of the loss of custom.

Customer connections at Best Buy Europe, Carphone's retail joint venture with U.S. electricals group Best Buy (BBY.N), were up 2 percent to 3.17 million, also just above forecast.

Despite the stronger than expected numbers, Carphone kept its full-year guidance to increase earnings per share by 10 percent, including the Tiscali deal.

Taylor said the group was taking a cautious stance ahead of the Christmas trading period.

"Clearly these figures will place small upside pressure on lower end (earnings) estimates," Credit Suisse analysts said.

At 0820 GMT, Carphone shares were up 2 percent at 209 pence, after touching a 16-month high of 216.1 pence.

IPHONE, BEST BUY

Taylor was "quietly confident" about Christmas, with growing competition to Apple's (AAPL.O) iPhone likely to stoke demand.

"Nothing's quite as intuitive yet as the iPhone ... (But) there are ever-increasing signs of the other manufacturers coming out with credible products, credible competition," he said, highlighting LG's (066570.KS) BL40 Chocolate phone and Sony Ericsson's (6758.T) (ERICb.ST) 12 megapixel camera phone.

Taylor also said Best Buy Europe would open the first of its megastores in April next year, with the first two opening in Southampton, southern England, and Thurrock, east of London.

The venture has signed leases for five sites so far, which would open in Spring/Summer next year, and was in talks over 10 more sites that would open after a pause of two or three months to assess how the first cluster of stores had fared, he said.

Best Buy Europe announced plans in 2008 to open a chain of electrical goods stores in Europe to take on Germany's Metro (MEOG.DE) and Britain's DSG DSGI.L, but it put back an original launch date of summer 2009 because of the recession.

Carphone, which has over 2,400 stores in nine countries, said it was on track to split into two businesses in March 2010.

The group believes its retail and telecoms businesses will be valued more highly by investors if separated.

Taylor said founder, chief executive and 33 percent shareholder Charles Dunstone would be executive chairman of both businesses following the demerger.

Carphone shares fell three quarters in value in 2008 as the recession hit, but have recovered about half of that loss this year, outperforming both the DJ Stoxx telecoms .SXKP and retail SXRP indexes. (Editing by James Davey/Will Waterman) ($1 = 0.6252 pound)