3G spending resulted in net loss for SUNDAY

August 18, 2005

SUNDAY Communications results for the period ended 30th June 2005 reflect the Group's commitment to invest significantly to launch 3G services in an intensely competitive market, while continuing to improve the quality and efficiency of its existing operations. The Group's 2G business continued to perform well while the 3G investment resulted in a net loss for the reporting period.

Following PCCW's purchase of a majority interest in SUNDAY on 22nd June 2005, the Group is well positioned to become a leader in the global trend of fixed-mobile convergence in which the fixed and mobile markets will gradually become one.

"On June 9, the Group announced the introduction of our first 3G product -- SUNDAY 3G Wireless Pass Data Card, Hong Kong's fastest wireless data card, signaling the beginning of a new era for SUNDAY," said Chief Executive Officer Bruce Hicks. "3G is an important element in the worldwide trend towards fixed-mobile convergence in which consumers will enjoy greater convenience and choice of communication, information and entertainment services in their homes, at their work and as they travel."

Results

As at 30th June 2005, the total number of subscribers increased by 43,000, or 7%, to 702,000, including growth of 11,000 postpaid subscribers, as compared with 30th June 2004. However, the market remained highly competitive, offering substantial price promotions and heavy handset subsidies during the period. As a result, both the mobile service revenues of HK$491 million and the average revenue per user for the first six months in 2005 fell by about 6% as compared with first half of 2004. (£1 = HK$13.94)

2G operating expenses decreased by a further 8% to HK$232 million as compared with the corresponding period in 2004. However, as a result of the 3G network roll-out, the 3G expenses increased from HK$13 million in the first half of 2004 to HK$83 million in the first six months in 2005. As a result, SUNDAY recorded a 19% increase in total operating expenses and a net loss of HK$62 million.

Progress in Operations

The market environment remained highly competitive during the first half of 2005. The general industry-wide trend of increasing voice traffic but declining ARPU continued, and ARPU had fallen by an average of over 13% during the first half of 2005 for post-paid services while, during the same period, average time offered increased by 12%. While the face value of stored value cards for pre-paid services remained relatively stable, operators focused on offering significant additional airtime minutes with an average increase of 55% during the first half of 2005. In addition, during the period, many operators also offered heavy handset subsidies for both acquisition and retention purposes.

For the first half 2005, overall operating expenses increased by HK$50 million, or 19%, compared to the first half of 2004, to HK$315 million, mainly attributable to the increased 3G expenses resulting from the roll-out of the network. SUNDAY continued to achieve incremental cost savings in a number of areas. Excluding 3G related expenses, 2G operating expenses decreased by 8% or HK$20 million. Earnings before interest, tax, amortisation and depreciation (EBITDA) for the 2G operations amounted to HK$144 million, while total EBITDA decreased by 59% to HK$61 million when 3G expenses of HK$83 million for the half year are included.

Strong Growth in Data Services Revenue

SUNDAY's efforts in the half allowed the Group to post another strong increase in data services revenues, which rose by 22% over the corresponding period last year to account for about 10% of total mobile service revenues. This growth is particularly encouraging as it points to the marked shift towards more data services as 3G technology garners mainstream adoption.