Carphone Warehouse is predicting a Christmas revival in the pay-as-you-go market as the availability of more affordable smartphones drives a sales turnaround.
Demand for models such as Nokia's Windows phone and Samsung Galaxy Y resulted in a return to like-for-like sales growth in Carphone's second quarter, up 5% across Europe - including a 10% surge in the UK.
Carphone reported a better-than-expected 57% leap in half-year profits to £8.3 million and said it was "quietly optimistic" for the festive season as smartphone deals breathe new life into the pay-as-you-go market.
There are now a number of smartphones available for under £100 for those unwilling to be tied into contracts - such as the Samsung Galaxy Y, LG Optimus L3 and Samsung Galaxy Ace.
Pay-as-you-go sales have slumped by as much as 40% over the past year after the regulator ordered a cut in the rates that operators charge to handle other networks' traffic, resulting in subsidies on mobile handsets being slashed.
The hit to pay-as-you-go sales left Carphone's mobile phone connections down by 11.5% year-on-year to 4.4 million in the first half.
But there was a marked improvement in the second quarter - with connections down 5.6% - as contract sales continued to rise and as more competitively priced phones began to revive pay-as-you-go sales.
The firm, whose Carphone Warehouse Europe division has nearly 2,400 stores, added that efforts to refocus the business following the closure of its ill-fated BestBuy electronics joint venture was also helping boost trade as it concentrates on its retail strengths.
But around 200 jobs are being axed in its Acton head office under a restructure of its UK and European business, which is set to deliver annual cost savings of up to £25 million.
Carphone shares rose 4% on Wednesday as the half-year figures came in ahead of market forecasts. The figures also showed Carphone's Virgin Mobile France joint-venture saw interim underlying earnings edge up to £8.1 million from £8 million a year earlier after revenues rose 9.2%.