However, some of the pain was offset by an increase of 29,000 prepaid subscribers to 256,000 and a 1.5 per cent rise in turnover to $584 million, as mobile-phone and accessories sales surged in the period.

Group managing director Bruce Hicks said the second-half figures were characterised by operating costs associated with rolling out its 3G network in preparation for a service launch in the second quarter of this year. The company booked $43 million in 3G-related operating expenses, of which $30 million came in the second half.

Mr Hicks also warned that 3G operating expenditure would rise 'significantly' in the coming year, adding that whether the company would report a profit in 12 months' time 'depends on when the market starts to roll'.

Sunday's 3G capital expenditure will soar to $800 million this year from $252 million last year as the firm receives the bulk of its $1.2 billion supply contract with Huawei Technologies.

The firm's 3G roll-out over three years is being financed by the Shenzhen-based equipment manufacturer, with repayment in eight instalments from May 2008.

Mr Hicks was bullish about the company's long-term prospects as a 3G operator and reiterated his view that the technology would act as a consolidator in Hong Kong's congested market.

Analysts were generally more sceptical of Sunday's prospects and the mobile sector as a whole.

One pointed out that while Sunday had booked an 81 per cent increase in 2G operating profit to $49 million, this was largely achieved through cost cutting as revenue from mobile services fell during the period. 'They did a great job at reducing operating expenditure, but they have probably got that down to the bare bones now, and they will not post a reduction in 3G operating costs anytime soon,' the analyst said.

Sunday shares closed 4.25 per cent lower at 45 cents yesterday.

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