The Securities and Futures Commission (SFC) is looking into the sale of 400,000 shares in SmarTone Telecommunications by its mainland shareholder Town Khan ahead of last Tuesday's results announcement, sources said. The sale was conducted during the one-month blackout period which prohibits parties connected to a listed company from buying or selling shares ahead of a results announcement. Town Khan is a unit of the former ministry of posts and telecommunications - which has since been merged into the Ministry of Information Industry - and has 10.38 per cent in mobile phone operator SmarTone. Liu Guang Qian, 70, chairman and general manager of Town Khan, has been a SmarTone director since 1992 and is the focus of the SFC's preliminary inquiries. On Tuesday, SmarTone announced profit for the six months to December fell 4 per cent to $480 million compared with the same period in 1997 as a result of tariff reductions and an ongoing price war in the industry. In the four weeks ahead of the result announcement, SmarTone's share price fell from a high of $24.70 to an intra-day low of $19.90, a 19.5 per cent decline. The stock exchange has been informed of the transaction and it is understood the SFC is beginning a preliminary investigation into the matter. Town Khan - one of SmarTone's founding shareholders - reduced its stake in the company in April last year by 2 per cent to 10.38 per cent. Reports at the time suggested Town Khan sold the stake to institutions for about $207 million. The sale represented the third of SmarTone's four original investors to cut their holding in the company. In January, US telecoms giant AT&T cut its holding to about 16.5 per cent from 22.3 per cent and paging company ABC Communications sold virtually all its 12.4 per cent stake for $1.1 billion in March last year. The fourth shareholder is Sun Hung Kai Properties, which has maintained its stake. Analysts have praised SmarTone in the past for its aggressive market-grabbing tactics which drove its share price up strongly but have recently called into question its potential for future growth. There has been speculation the decision by its founding shareholders to either reduce or sell their stakes indicated they believed the company's prospects for earnings growth to be limited. Speaking at Tuesday's results announcement, chief executive Hubert Ng Ching-wah admitted competition and price battles had hurt the company's profitability. The group would strive to minimise operating costs and cultivate alternative sources of income, he said. He said the number of customers, including GSM, PCS and rechargeable SIM card users, had fallen to 521,000 on December 31 last year from 523,000 in June. To fend off competition, SmarTone reduced tariffs twice during the six month period by as much as 32 per cent. Average monthly spending per customer slipped to $437 from $597 year on year. However, operating costs improved 8 per cent to $103 per customer. Mr Ng said interest income decreased by more than one-third to about $55 million in the first half. He said the company had amassed more than $1 billion in cash, but had not yet finalised any plans for acquisitions.