MMO2, the UK’s third-ranked mobile operator, admitted that less than 50 per cent of the population is covered by its third-generation (3G) network, as it unveiled plans to pay its first dividend next year.

The group is now far behind its rivals Vodafone and Orange, which have achieved 60 and 66 per cent coverage respectively. The faster 3G handsets give users access to video clips and music.

Analysts said that because of the slow introduction, mmO2 could fall further behind in the race to win 3G customers.

The group, which reported a strong set of half-year results yesterday, has already said that its 3G handsets will not be on the shelves in time for the key Christmas period. And if coverage is poor when it launches the new phones, customers may be more likely to switch to rivals.

Peter Erskine, chief executive of mmO2, said, however, that he was not concerned. He said that the company would only launch the technology when it was completely user-friendly and any glitches had been ironed out.

“It is going to be a 2G Christmas. I am very confident on that. We will not launch 3G until it is dead right for customers,” he said. “The year 2005 is the year for 3G.”

He added that 20 of the UK’s major cities were covered by its 3G network.

Yesterday’s results, for the six months to the end of September, represented a landmark for the operator when it announced its first dividend payout since it was demerged from BT three years ago. It also raised its full-year UK revenue forecasts for the second time in two months.

Although the company refused to disclose the payout, analysts forecast that it would be about 2p. The company said that, from 2008, it would give half of its underlying earnings per share back to shareholders.

Sales at the group jumped to £3.3 billion from £2.8 billion in the same period last year, and earnings before interest, tax, deprecation and amortisation were up 37 per cent to £851 million.

Subscriber numbers in the key UK market increased by 10 per cent to 13.86 million.

The shares rose 5 per cent to 111.5pence.

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