3G phones have been slow to catch on

In a trading statement issued on Monday, the UK's fourth largest mobile telecoms operator reported strong growth in customer numbers and revenue in the past three months.

But it said the cheaper call charges imposed by Oftel will impact on its turnover in the second half of its financial year.

Earlier this year, MMO2 reported record losses of �10.2bn - after massively overpaying for third generation licences at the height of the telecoms boom.

3G launch

The company stressed it was still on course to meet its full-year target of 10% service revenue growth, in its core UK market.

The figures suggest MMO2, which was spun off from parent BT two years ago, has so far shrugged off the threat from new market entrant 3G UK, which offers third generation video phone technology.

MMO2 chief executive Peter Erskine said: "The strong customer and ARPU (average revenue per customer) growth that we reported across the group in the first quarter was sustained into the second quarter, and our first half results will reflect this.

"In the UK, we remain focused on delivering our full-year target of 10% service revenue growth and a 30% EBITDA (earnings before interest, tax, depreciation and amortisation) margin, although we expect the market to become more competitive in the second half."

He said the company was making progress towards the launch of its own 3G services, "when the conditions in our markets are right for this".

But although speding on 3G technology would be stepped up in the second half, the company said that, overall, it would be cutting back on investment in new plant and infrastructure.

It said it expected full-year capital expenditure to be between 5% and 10% below a previous forecast of �1.3bn.

MMO2 shares were down 0.5 pence at 58p in early trade.

Financial straightjacket'

The cost of calls to mobile phones will fall by up to 50% over the next three years, following a High Court ruling in July.

The new rules - which will begin to come into effect at the end of next month - could save consumers �190m each year until 2006.

The latest estimate from Oftel is that by 2006 the cost of a call from a BT fixed line to a mobile will fall from 17p/min to 12p/min on average.

As for cross network mobile phone calls, the average cost will fall from 24p/min to 19p/min.

But the mobile industry, which fought a long-running court battle against the new charges, has accused Oftel of placing it in a "financial strait jacket".