ASIA : SUNDAY Communications announced its annual result for the 2004 financial year, reporting a net profit of HK$6 million after deduction of HK$43 million in 3G costs, and its intention to launch 3G services in the second quarter of 2005.

"During 2004, we focused our energies on preparing for the launch of our 3G services, while continuing to improve the quality and efficiency of our operations," said Group Managing Director Bruce Hicks. "The 3G market in Hong Kong is now gaining the desired momentum and consumers are increasingly excited by what the technology will offer. Already this is altering the competitive landscape greatly to SUNDAY's benefit. We are fully ready for 3G and will endeavour to seize the opportunities it presents."

Strong Rise in Profitability of 2/2.5G Business

The Hong Kong mobile telecommunications market remained highly competitive during the year. Although SUNDAY did not compete aggressively with other operators' extensive subsidies of 2G handsets, the Group's subscriber base increased by 4% over 2003 to 684,000, with growth in both the post paid and prepaid categories. ARPU, however, declined to HK$180 per post paid subscriber as price tariffs fell and rebates increased. As a result, mobile service revenues declined by 10% to HK$1,032 million. Further gains were made in operating efficiency, so that despite 3G start up expenses, total operating expenses declined by 12% to HK$544 million. As a result of these efficiencies, SUNDAY recorded an 81% year on year increase in 2G operating profit to HK$49 million, and after HK$43 million in 3G costs, its second consecutive full year net profit, amounting to HK$6 million.

Improved Efficiency, Network and Service Quality

The positive results reflect management's far-sighted strategy of putting in place the fundamentals needed to succeed as 3G becomes a reality.

Measures taken to improve efficiency, notably the establishment of its service centre in Shenzhen, Mainland China, continue to yield results, with the ratio of 2G/2.5G operating expenses to mobile services revenue improving further to 49% in 2004 from 54% in 2003 and 65% in 2002.

Network quality was enhanced in 2004 by the addition of 64 cell sites to the 2/2.5G network and SUNDAY data and analysis from its monthly surveys of service quality helped improve network quality and customer service. As a result, SUNDAY garnered a remarkable number of customer service awards from a variety of organisations. These included the "Best-in-Class" award from the Asia Pacific Customer Service Consortium and 10 awards from Hong Kong's Call Centre Association.

In marketing, the focus on demographic attributes and customer behaviour patterns supported a 32% increase in data services revenue, which accounted for 8% of mobile service revenues, and reduced churn. This market segmentation has also allowed SUNDAY to understand how to offer tailored services to user groups, something which will be vital to attracting and retaining customers in the 3G era.

The Right 3G Strategy

In addition to solid fundamentals, SUNDAY has made decisions on timing, technology and service delivery in relation to 3G that will give it a competitive advantage.

The promise of 3G technology has, as SUNDAY predicted, been undermined by teething problems in networks and in particular by a lack of good handsets. This situation is now improving and by the second half of 2005, much superior handsets will be available to all operators from a wide variety of manufacturers. Hence SUNDAY's plan to launch in the second quarter of 2005, after other operators, will coincide with the availability of handsets which will be in demand from consumers because of their improved functionality and cost.

The technology partnership with Huawei Technologies Co. Ltd. (Huawei) has exceeded expectations. In November, SUNDAY signed expanded credit and supply terms with Huawei, which has shown itself committed to providing a 3G platform and services that can be a global showcase of the technology. The extended repayment schedule, meanwhile, greatly strengthens the Group's financial position during the start up period.

The SUNDAY 3G network is now installed and the billing and service platforms are in place. Moreover, extensive testing has demonstrated that it will be among the leaders in the quality of service that users will experience. With minor enhancements SUNDAY's 3G network will also be ready by the first quarter of 2006 for high-speed downlink packet access (HSDPA) technology, which offers even faster speeds and opens up mobile networks to the full range of multimedia services.

"The new technology offers an enormous opportunity to make life more fun through a wide variety of entertaining content, intriguing handsets and innovative service. This promise of 3G technology aligns closely with long-held perceptions of SUNDAY's brand, giving us a distinct advantage in the marketplace," said Mr. Hicks. "But the technology must be delivered in the right way, through handsets and networks that are reliable and easy to be use, with associated customer services that deliver consistently positive consumer experiences. We have worked diligently to build the service delivery platform capable of achieving this for our 3G service to ensure it will be the stimulating, vibrant and meaningful experience the market expects."

Positive Outlook

The arrival of 3G immediately improves SUNDAY's competitive position. Although timing is uncertain, market consolidation is an inevitable consequence of 3G as the excitement offered by the more sophisticated technology becomes readily accessible, leading to increasing consumer demand. As a 3G license holder, SUNDAY will benefit from this process. Even in the absence of consolidation, the improved handsets and extensive roll out of 3G networks are expected increasingly to drive higher value added usage, including data usage, to 3G services. SUNDAY's combination of excellent technology, ease of use and exciting content, backed by a brand that fits the market will enable it to capitalise on the opportunity

"The current year will be competitive and further 3G roll out costs will affect our profitability in the short term. But we are excited about the imminent launch of our 3G service, which we are convinced will make the lives of our subscribers more fun and lead to higher revenues. In the longer term, growth avenues will open in relation to Mainland China, and Internet Protocol becomes the common platform for multimedia services for fixed and wireless telecommunications. We firmly believe that the future belongs to SUNDAY, and that shareholders will be rewarded for sharing our belief," said Mr. Hicks.