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OPTUS is preparing to offer free mobile phones to push customers towards its third generation, or 3G service.

But it said it had yet to find an appropriate handset or price point. The number two telco has so far spent $370 million on its new 3G mobile network, which gives users faster and cheaper services, but is yet to aggressively push its 2G customers towards it.

Earlier this year, almost half a million Hutchison mobile subscribers were offered a new free 3G handset as the provider moved to ditch its 2G network entirely.

Optus chief executive Paul O’Sullivan said the telco would look to offer free handsets before Christmas.

“We are driven by customer behaviours, rather than necessarily by the technology itself,” Mr O’Sullivan said.

“We have been making sure we are 3G-enabled, we have put about $370 million into the 3G network and we have about 1100 base stations.

“Whilst we are well enabled on the technology side, we are not yet comfortable that for the mass market of customers our handsets both in terms of price and performance are quite where they need to be to be an economic proposition.”

He said some high-spend Optus customers were being offered free handsets.

“But for the wider mass market we don’t believe there is a handset at a suitable price with a suitable level of performance that we are prepared to push aggressively,” Mr O’Sullivan said.

“We do think that will change between now and Christmas, which is a fairly big volume period in the mobile market.

“So when we think it is right for customers - and when we know if we give customers an incentive to change behaviour the platform will support that move - we will do it.”

According to a recent Citigroup report, rival Telstra has begun aggressively offering new handset subsidies, including free handsets - on a monthly plan - that used to cost up to $699.

Mr O’Sullivan said this would continue to affect competition in the mobile market.

“We have seen Telstra put a fairly significant amount of subsidy on some of its offers in the current quarter and that is undoubtedly driving some competitive momentum,” he said.