SmarTone Telecommunications Holdings yesterday said pressure on profits would remain intense in the next six months as it reported a worse than expected 83.4 per cent plunge in interim net profit on the back of heated competition and rising 3G-related costs. Net profit for the six months to December fell to $37.04 million from $224.02 million a year earlier, despite a 1.5 per cent increase in turnover to $1.85 billion. SmarTone chief executive Douglas Li said intense competition had driven up handset subsidies and marketing costs as the company sought to retain market share. Amortisation in handset subsidies reached $64 million during the period, more than double the $31 million in the entire previous financial year. Overall operating expenses rose $79 million to $714 million mainly because of 3G network roll-out costs. 'We expect competition in the market to maintain its intensity, if not increase in the second half,' Mr Li said. Hong Kong's mobile-phone sector has undergone both a period of consolidation and intense competition in the past year as operators attempt to increase market share and convert users to 3G services. China Mobile acquired China Resources Peoples Telephone, Telstra-owned CSL merged with New World Mobile Holdings, while fixed-line operator PCCW paid $1.54 billion for a 79.53 per cent stake in Sunday Communications. PCCW recently launched a six-month free trial of its 3G service, a move Mr Li acknowledged would add to the pressure on other operators to attract subscribers. 'The long-term impact of the offer remains to be seen, but what it has done is bought [PCCW] time,' Mr Li said. 'We are not about to offer six months' free service but we do intend to defend our market share.' SmarTone increased its subscriber base to 1.05 million in December from 1.01 million six months earlier, with 100,000 3G subscribers this month. Average revenue per user grew to $210 from $203 during the period. SmarTone shares yesterday fell 0.56 per cent to end at $8.80. A Macquarie Research report released ahead of the results announcement rated the stock underperform, citing a 'tough year ahead' for Hong Kong's third-largest mobile operator.