Sing-Tel Optus is starting to pay for its lack of investment in mobile operations. Findings by broking firm Merrill Lynch indicate the widening gap between Telstra and Sing-Tel Optus - the number two player in mobiles in the country – is more likely to be caused by under-investment than poor marketing.

"Our analysis suggests that Optus's underinvestment rather than a lack of marketing spend is the key reason for its underperformance versus Telstra," analysts said in a note yesterday.

"We believe that it has failed to exploit growth opportunities in mobile and fixed data and broadband services over the past three years."

The broker believes that only an increase in investment in its mobile operations will prevent Sing-Tel Optus from further losses in market share.

The importance of the mobile business to Optus cannot be understated; it contributes almost three-fifths of revenue. But last month the division posted a 6.6 per cent decline in pretax earnings for the quarter, down to $327 million, due to lower termination rates - the price a carrier charges callers to reach a phone on its network - from 12c a minute a year ago to 9c.

Optus has certainly has some catching up to do since Telstra sprang its third-generation mobile network on competitors in October 2006. Optus began rolling out a national 3G mobile network of its own last year at a cost of up to $500 million.

Findings also indicate lost ground to Hutchison Telecoms over the past three years as its 3G network expands and the 14-month delay in Sing-Tel Optus launching into the wireless broadband market.

Optus chief, Paul O'Sullivan should expect tough questions from investors in Singapore next week.